Decentralized issues in bitcoin blockchain and Nakamoto monetary rule

The paper is devoted to studying the bitcoin blockchain as a new global phenomenon in monetary economics, which requires comprehending from the economic theory view - a self-regulating system of decentralized emission without participation of a central monetary authority. Mathematical modelling is the instrument of this studying. The author has analyzed the Bitcoin system parameters that determine dynamics of a self-regulating emission mechanism. This mechanism operates in a peer-to-peer computer network and provides a smooth increasing of the "money supply" with a gradually decreasing rate of growth. The limit of this growth is determined by maximal volume 21 million BTC. Self-regulation is implemented through negative feedback between changes of control parameters (the target interval for the hash function values and the Bitcoin Difficulty level) and the speed of mining process. Control parameters depend on the real speed deviations from the target value. This mechanism provides a stable mining speed and determines annual rate of emission. The author suggests a spline-function for describing the annual rate of the cryptocurrency emission in accordance with the Proof-of-Work protocol in the Bitcoin blockchain algorithm. This spline-function gives possibility to find a monetary rule for annual rate of emission. The author in the paper proposes to call this monetary rule by the name of the Bitcoin system inventor - Nakamoto Monetary Rule. The Nakamoto Monetary Rule could be seen as the first example of a programmable monetary rule of the decentralized emission algorithm on the basis of blockchain technology. Central banks could use a similar approach, with the necessary modifications, to develop their programmable monetary rules for Central Bank Digital Currencies (CBDCs) emission based on DLT or blockchain technology

Simple monetary rules: many strengths and few weaknesses

This paper endeavors to examine the basic idea in Richard Epstein’s book Simple Rules for a Complex World. It does so by considering a specific simple rule which was explicitly designed for complex world. A basic idea in Epstein’s book is that the more complex is the world the better is the case for simple rules. To show this, he develops six simple rules pertaining to the rights of individuals, first possession, contracts, torts, government eminent domain and the power of taxation to provide public goods. This paper considers one rule rather than six rules, and it looks at monetary policy rather than policy in general. While the context is different, the case for simple rules made here provides a useful comparison with the case made by Epstein.

A Route to Commons-Based Democratic Monies? Embedding the Governance of Money in Traditional Communal Institutions

The financial crisis of 2008 resulted, among other, on a popular awareness that the monetary system was not working for the interest of the many. The blockchain technology that was launched soon after offered monetary activists and entrepreneurs a tool to re-imagine, re-claim and re-organize money along a vague ideal of a commons paradigm. A wave of monetary experimentation ensued that took a most concrete form in two entrepreneurial spaces: crypto-currencies with global ambitions and local currencies based on communal democracy. Seemingly distinct on the outset, both strands share a determination to develop a monetary system that serves the many. This has led participants on both sides to reach out toward each other. The article looks at one such attempt: the Sarafu community crypto-currencies in Kenya. These currencies are embedding the creation of money in traditional community savings groups. Using Eleanor Ostrom’s framework and building on interview and ethnographic material, the article identifies the economic logic of mutualization proper of the savings groups as one that transforms private assets (one’s savings) into a financial commons for the group. To build on this logic, the Sarafu model in-the-making is embedding the production and governance of the new community cryptocurrencies in these saving groups. In that doing, Sarafu has the potential to advance a new architecture of money. However, findings suggest that the standardization and automation of the new monetary rules through smart contracts impose neoliberal ideas that slipped into the code, risking the erosion of the very communal decision-making processes that made savings groups interesting anchors of a money commons in the first place.

Monetary policy special features in the context of low interest rates

Introduction. The paper considers a wide range of monetary policy rules: integral stabilization, NGDP targeting, price level targeting, raising the inflation target, introducing negative nominal interest rates etc. The author also considers discretionary policy used by central banks when the nominal rate is close to zero, such as dramatic preventive cut of the key interest rate and interventions in the open markets with the aim of cutting long-term interest rates. The relevance of this problem is supported by global long-term macroeconomic and demographic factors, such as the dynamics of oil prices and the aging of the population. The aim of the paper is to identify the most effective monetary policy rules in order to reduce the risk of a nominal interest rate falling to zero. Methods. Analysis of the background and the results of general equilibrium models modeling monetary policy is carried out. Analysis of the role of current global trends (based on statistics) in aggravating the problem of declining interest rates. Scientific novelty of the research. The author systematizes the conclusions of modern macroeconomic theory, which offers a number of monetary rules making it possible to reduce the likelihood of falling into the zero bound of interest rate. Results. The effectiveness of monetary rules such as targeting nominal GDP and price levels in preventing the nominal interest rate from falling to zero is shown, primarily due to more efficient public expectations management which is a weak point of discretionary intervention. Conclusions. Under the current global factors for many developed countries and some oil-exporters, the downward trend in nominal rates persists. Combined with slowdown in economic growth, such threat may have negative consequences for the Russian economy. In this case, it seems reasonable to stick to the inflation target above 2% per year and in the future to consider switching to targeting the price level or nominal GDP.