Cryptocurrencies and their IMPACTS ON MONETARY POLICY

CRYPTOCURRENCIES AND THEIR IMPACTS ON
MONETARY POLICY

Table of Contents
CHAPTER 1: INTRODUCTION.....................................................................................................................1
1.1 Background.......................................................................................................................1
1.2 Research questions...........................................................................................................2
1.3 Research objectives..........................................................................................................2
1.4 Significance of the study..................................................................................................3
1.5 Thesis structure.................................................................................................................4
CHAPTER 2: LITERATURE REVIEW .........................................................................................................5
2.1 Concept of cryptocurrencies.............................................................................................5
2.2 Different kinds of cryptocurrencies..................................................................................6
2.3 Definition of monetary policies........................................................................................9
2.4 Quantity theory of money...............................................................................................10
2.5 Mises regression theorem...............................................................................................11
2.6 Cryptocurrencies as medium of exchange......................................................................12
2.7 Fiat currency vs. digital currency...................................................................................13
2.8 Recent researches...........................................................................................................15
2.9 The rapid spread and use of cryptocurrencies................................................................15
2.10 Cryptocurrencies Monetary Policy...............................................................................16
2.11 Regulatory landscape of digital currencies in the US..................................................16
2.12 Economic and Legal aspects of cryptocurrencies........................................................17
2.13 Cryptocurrencies and their impact on Monetary policy in the United States...............17
2.14 Prediction on the effects Cryptocurrencies will present in future................................18
CHAPTER 3: RESEARCH METHODOLOGY ...........................................................................................18
3.1 Research design..............................................................................................................19
3.2 Research Instruments......................................................................................................21
3.3 Data Collection...............................................................................................................23
3.4 Research Ethics..............................................................................................................25
3.5 Data Analysis..................................................................................................................26
3.6 Research Reliability and Validity...................................................................................26
CHAPTER 4: FINDINGS AND DISCUSSIONS .........................................................................................26
Key Findings/Results............................................................................................................26
How do cryptocurrencies impact on the Monetary policy in the US...................................26

Discussion.............................................................................................................................26
CHAPTER 5: CONCLUSION AND RECOMMENDATION .....................................................................26
Summary of Major Findings................................................................................................26
Recommendations................................................................................................................26
Limitations of the Study ......................................................................................................26
Suggestions for Future Research..........................................................................................26
REFERENCES...............................................................................................................................................27
APPENDIX.....................................................................................................................................................31
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CHAPTER 1: INTRODUCTION
1.1 Background
Cryptocurrency is considered as the digital assets that serve as a medium of exchange. It
is the form of digital money in which cryptography method is being used in order to convert
legible information into uncrackable code (Pieters, 2017). It is the type of virtual currency in
which concerned authorities use encryption techniques for generating units of currency and
secure transfer of funds. Bitcoin was the first open source software that was introduced in market
in the year 2009. It works on decentralized cryptocurrency method. Bitcoin is the first electronic
cash system that prevents public from double spending. It is decentralized system in which no
central authority exists. Bitcoin was developed by Satoshi, initially all attempts were failed but
later on, Satoshi had built digital cash system by using peer to peer network. Cryptocurrencies
ensure efficiency in financial proceedings and reducing transactions cost (LeBlanc, 2016).
Cryptocurrencies impact on the monetary policies to a great extent; it is essential for the
economic benefits. It plays a significant role in production of money in the nation. The
fundamental reason of introducing Bitcoin; a decentralised system was to record immutably
monetary transactions. This digital money transactions system has supported in improving the
economic condition of nation. Bitcoin system is the unexplored zone for central banks globally.
Now, electronic cash transaction system has supported suppliers in sending money from one
country to another without involving central banks or intermediaries (Bitcoin may have
implications for monetary policy, 2017). These transactions are recorded in block chain but this
block chain system does not disclose that whether the transaction was within nation or across the
border.
In the year 2013, United Stated had faced banking crisis situation. After that, authorities
have made limitations on daily money supply. It has been restricted to 300 per day. After this
crisis, banks have restricted using cheques and banned high amount of cash transfer. After this
restriction, it was very difficult for the suppliers in sending money to other nations. But,
cryptocurrencies methods such as bitcoin have helped people in sending money to other
countries easily just like sending email to other person (The Effects of Electronic Payments on
Monetary Policies andCentral Banks, 2015). Due to fluctuations in economy conditions
electronic payment system is in high demand. In the year 2013, Cypriot banking crisis has taken
place that has created fear in capital market in entire region. But this has helped in the raising
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prices of bitcoin from about 15 to 200. Interest of Chinese market was increasing due to which in
third quarter of 2013, prices got increased.
With the increasing pricing, interest of public was enhancing as well and thus, more
electronic transactions were taking place through electronic payment system. This has affected
the monetary policies significantly (Can digital/crypto currencies influence monetary policy,
2017). Quantity theory of money explains that if velocity of money and real output of economy
are constant then it can enhance price level which may cause inflation in country that impacts on
economic condition of the nation to a great extent. Bitcoin system has affected US Dollar Federal
Reserve monetary policies. If bitcoin electronic payment system is being used in high amount
then velocity of money can be increased. In such condition, inflation can get arise. In the
inflation status, central bank of country has to decrease money supply in order to maintain
economic condition of region. Cryptocurrencies highly impact on the macroeconomic stability of
region. This is associated with dollarization like effects such as re denomination of assets
(Bitcoin may have implications for monetary policy, 2017).
Present study will discuss the impact of cryptocurrencies on monetary policies of US. It
will explain the kinds of cryptocurrencies that are used in market. Furthermore, it will explain
Mises regression theorem. Furthermore, research will describe fiat currency vs. digital currency.
Economic and Legal aspects of cryptocurrencies will be discussed in this dissertation.
1.2 Research questions
Aim
“To identify the impact of cryptocurrencies on monetary policies: A study on United States”
Based on the above aim of the investigation, the research questions that can be framed are
as follows:
 What is the core concept of cryptocurrency?
 What are the various types of cryptocurrency?
 What is the impact of cryptocurrency on overall monetary policies of the country?
1.3 Research objectives
Based on the above aim being framed, following research objectives can be formulated:
 To understand the concept of cryptocurrency
 To prepare an assessment of various types of cryptocurrency
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 To assess the impact of cryptocurrency on overall monetary policies of country
1.4 Significance of the study
It is quite important for the researcher to choose a topic that is significant enough and is
able to serve purpose of one or tother aspects. The present study deals with understanding
concept of cryptocurrency and its impact on monetary policy formation of country.
Cryptocurrency is the digital currency in which encryption techniques are taken into
consideration (Iwamura, Kitamura and Matsumoto, 2014). It helps in regulation of generated
units of the currency in a manner that verified funds can be transferred. It has the characteristics
and advantages of being operated through central bank independently (Scott, 2016).
Cryptocurrency is considered to be a future of currencies in the coming period. It is inclusive of
certain blockchain technology as uses cryptograph so as to generate money and verify certain
transactions. Since, it is a technical term and people may be required to generate informtiona
regarding the same so as to ensure that they are aware of it before entering into a virtual currency
market; it becomes important to gather adequate knowledge about it (Ametrano, 2016).
Another important aspect that is related to cryptocurrency is that it has been able to grab
the eyeballs of various investment intuitions when suddenly some of the cryptocurrencies raised
in the market. One of the most famous out of it is Bitcoin. It is the new investment trend that
various countries have been experiencing these days. Various people who tried to make
investment in it have been able to gather benefits out of it in an unimaginable manner. It has
increased the interest of various people. Since, cryptocurrency is a low-cost means, one does not
have to sell out money so as to gain and exchange digital returns. An individual is just required
to deal with the help of mobile phone and an internet connection. It is due to easy and effective
method in which people can easily deal is also making them attracted towards cryptocurrency
format (Fry and Cheah, 2016).
In majority of the digital currencies, an individual is required to pay for transaction. It is
the transaction charge which is present in case of other digital currencies. However, in case of
digital currency, there is no transaction charge involved in it. The people who are involved in
dealing with the cryptocurrencies are called as miners and get compensated from the network
itself. In this scenario, they are not liable to pay any transaction cost for any of the dealings. It is
due to this reason, majority of the individuals opt for cryptocurrency transactions (Hileman and
Rauchs, 2017).
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In order to serve all these functions, adequate efforts will be made to make the readers
aware regarding various aspects of cryptocurrency. The research will also be responsible of
making them aware regarding impact on monetary policies due to existence of this type of
cryptographic currency. Hence, the research is quite significant to develop the knowledge of
readers and policy makers with respect to cryptocurrency.
1.5 Thesis structure
Structure of the thesis is described as below:
Chapter 1 Introduction: It would be the first section in which brief discussion about
cryptocurrencies and its impact on US monetary policies will be done. In this section, scholar
will define aim and objectives of the research (LeBlanc, 2016). Furthermore, significance of the
research will be discussed in this study.
Chapter 2 Literature review: It would be the next part in which various literatures of other
authors on same topic will be involved. This would be the most important part of study as by
reviewing literature of other authors, scholar will be able to develop in-depth understanding
about cryptocurrencies and its impact on US monetary policies (Pieters, 2017).
Chapter 3 Research methodology: It would be the next part of dissertation in which scholar
will select appropriate research methods that will help scholar in carrying out study in an
effective manner. Research methods support researcher in identifying the way of conducting
entire investigation. Hence, in order to serve this purpose, the chapter will be important to
ascertain and find out research approach, philosophy, type of investigation, etc. Research
methodology will also be responsible for discussing the data collection methods and its analysis
that have been opted for research purpose. At the end, reliability and validity of the research will
be identified and signified that all important aspects have already been taken care of by
researcher (Hayes, 2017).
Chapter 4 Findings and Discussion: It is another most important chapter of overall dissertation
which helps in ascertaining findings based on data that has been collected by researcher on stated
subject. The chapter also discusses regarding various important topics of research and helps in
developing a clear understanding regarding cryptocurrency. Thematic analysis will be conducted
in this research chapter where themes will be formulated so as to ascertain important aspect of
the research and discuss on its key points. The chapter will then be responsible for determining
various loopholes that may be noticed in the presented research by other researcher which must
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have been assessed with help of secondary study. The chapter will be further divided into two
subparts, where first part will discuss regarding findings and results being collected by
researcher. It also discusses other sub parts which help in creating discussion with respect to
key points (Gandal and Halaburda, 2014).
Chapter 5: Conclusion and recommendations: It is one of the most important chapters of
whole dissertation which helps in developing key understanding regarding stated topic. It also
helps in ensuring key and specific points that have been covered by researcher. The overall
chapter will be further divided into four subparts. The first part will be responsible for discussing
summary of major findings based on what has actually being collected in the form of secondary
literature. The second sub part of this chapter discusses regarding recommendations that can be
extended to the policy makers with respect to formation of monetary policies in the country
(Park, Fuchsbauer and Gazi, 2015). It will also be responsible of examining various loopholes in
the current policy frameworks and steps that can be initiated to bring change and make it quite
effective. The third sub part of this chapter will be responsible to various assess various
limitations of the study where all restrictions that have been taken into consideration while
conducting this research so as to make readers aware about it. At the end, fourth subpart of
chapter, that is, suggestions for future research will help in mentioning suggestion of various
topics on which research can be conducted by researcher so as to gain concrete as well as
specific knowledge regarding cryptocurrency.
CHAPTER 2: LITERATURE REVIEW
2.1 Concept of cryptocurrencies
According to Delmolino and Shi, (2016) cryptocurrency is a digital currency which
involves encryption techniques that can be used in regulation and generation of currency and
verifying the transfer of funds. It is generally operated though central bank and do not have to
deal with any other bank in between. One of the most common yet modern example of
cryptocurrency is bitcoin which has now been able to offer an outlet for personal wealth beyond
any type of confiscation and restrictions. It has been considered that encrypted currency is one
of the safest as well as trusted kind of digital technology that people tend to prefer these days.
There are various robberies and looters present in the world and currency must be placed at the
safest place possible so as to ensure that their investment is safely present. Encrypted currency
helps in giving this type of assurance to people which makes it an important source of investment
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