Gina C. Pieters, Ph.D. economist at Trinity University, shows in her paper that a properly adjusted Bitcoin price can shed light on how countries manipulate their exchange rate and/or institute capital controls.
Typically, economists discover the intensity of currency manipulation and capital controls via other international measures, stocks, globally traded commodities, or even the infamous Big Mac Index. She recently presented her work at The Royal Economic Society’s annual conference, although much of her data is for 2014-2015 because of the data availability bottleneck from other countries that institute currency and capital controls. Her study utilizes the fact that Bitcoin is traded 24/7 virtually with all data in the open so researchers would not have to wait for data collection like previous methods. She also emphasizes that Bitcoin’s minuscule transportation costs and separation from nation-states make it less prone than commodity measures to cross-boarder trade price differential and trade barriers imposed by countries.
Pieters acknowledges that Bitcoin’s price does not find parity across exchanges nor countries due to various reasons and thus the price needs to be normalized to be an appropriate gauge to judge other countries’ currency and capital controls. She is then able to use Bitcoin exchange price data to discover currency and/or capital controls and the degree within China, Argentina, South Africa, Poland, and more. Her motivations for the study was that “before access to Bitcoin-pricing data such results would be slow, difficult or impossible to construct. The results of this study provide a new tool with which to detect the presence of capital controls.”
Currency Manipulation and Capital Controls
Free floating exchange rates are market forces that determine the proper price of a country’s currency based on a countless number of variables and interlink with many parts of the macro and micro economy. However, some countries try to manipulate currency exchange rates overtly or covertly with currency pegs/managed exchange rate regimes and/or capital controls. Separating a currency’s price into two parts, one part determined by market forces and the other part determined by government manipulation, is very hard to do and what theses studies attempt to measure.
An important caveat that Pieters mentions earlier in her paper is that Bitcoin could be skewed towards individuals that like “computer programming and illegal activity” along with other correlations and skewed away from others in the country that do not share those interests. Thus a non-normalized Bitcoin price could be an incomplete gauge for currency users in the rest of the desired country. Theoretically, her normalization with USD-EUR exchange rate would eliminate this, but a problem would arise if the demographic ratio of people using Bitcoin to other currency users within a country is inconsistent across countries. This would make a one off normalization incomplete. So even better cryptocurrency data for analyzing government currency manipulation and capital controls would be a cryptocurrency that is used widely within and across countries.
Dash is widely used across many countries for everyday purchases.
In her conclusion, Pieters does recognize that since she completed her initial research many more exchanges and cryptocurrencies have emerged that warrants additional studies. Dash would be able to help solve her concern about Bitcoin being skewed towards particular types of individuals that may not be a consistent demographic ratio across countries in relation to the rest of the population. While all cryptocurrencies possess this problem to a degree since it is a new technology, Dash is making significant steps towards larger adoption across countries and across demographics.
Dash is booming in Venezuela where citizens suffer from massive inflation partially caused from government exchange rate manipulation and capital controls. Dash has teams in countries across Africa, Europe and Asia as well to increase adoption. Dash has very low transaction costs and times, has the consumer in mind when developing advancements, and offers both private and normal blockchain transactions, which makes Dash appealing to all types of individuals. Under Pieters’ methodology, while Dash would most likely still have to be adjusted, Dash would serve as a better gauge for inter- and intra- country currency demand, supply, and pricing.