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P. Benigno: Monetary Policy in a World of Cryptocurrencies

Can currency competition destabilize central banks’control of interest ratesand prices? Yes, it can. In a two-currency world, the growth rate of cryp-tocurrency sets a lower bound on the nominal interest rate and the attainablein‡ation rate. In a world of multiple competing currencies issued by pro…t-maximizing agents, the central bank completely loses control of the nominalinterest rate and the in‡ation rate, which are both determined by structuralfactors, and thus not subject to manipulation, a result welcomed by the pro-ponents of currency competition. The article also proposes some …xes for theclassical problem of indeterminacy of exchange rates.

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