Pub Date : 2025-12-11DOI: 10.1016/j.jimonfin.2025.103505
Makram El-Shagi , Steven J. Yamarik
This paper examines the impact of Federal Reserve policy on income inequality across US states. We use the local projections method of Jordà to estimate impulse response functions for each state. We find that a restrictive monetary policy increases income inequality in almost all states, but with differing magnitudes. We also use panel analysis to examine the possible transmission mechanisms that account for these differences. Our empirical results confirm the theoretical predictions – inequality is increased by higher inflation, home ownership, and earnings in the finance, insurance and real estate (FIRE) sector; but decreased by higher housing prices, unionization rates, educational attainment and minimum wage.
{"title":"Federal reserve monetary policy and income inequality across US states","authors":"Makram El-Shagi , Steven J. Yamarik","doi":"10.1016/j.jimonfin.2025.103505","DOIUrl":"10.1016/j.jimonfin.2025.103505","url":null,"abstract":"<div><div>This paper examines the impact of Federal Reserve policy on income inequality across US states. We use the local projections method of Jordà to estimate impulse response functions for each state. We find that a <em>restrictive</em> monetary policy increases income inequality in almost all states, but with differing magnitudes. We also use panel analysis to examine the possible transmission mechanisms that account for these differences. Our empirical results confirm the theoretical predictions – inequality is increased by higher inflation, home ownership, and earnings in the finance, insurance and real estate (FIRE) sector; but decreased by higher housing prices, unionization rates, educational attainment and minimum wage.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103505"},"PeriodicalIF":3.3,"publicationDate":"2025-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797135","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-10DOI: 10.1016/j.jimonfin.2025.103503
Amat Adarov , Ugo Panizza
This paper introduces a new index measuring the quality of public investment covering 120 economies over the period 2000–2021. It shows that scaling up public investment reduces sove-reign risk in countries with high-quality public investment but increases sovereign risk when public investment quality is low. We find that this relationship is especially pronounced in sub-investment grade countries and that the results are not driven by the possible correlation between public investment quality and overall institutional quality. We also show that scaling up public investment when its quality is high does not undermine debt sustainability.
{"title":"Public investment quality and sovereign risk","authors":"Amat Adarov , Ugo Panizza","doi":"10.1016/j.jimonfin.2025.103503","DOIUrl":"10.1016/j.jimonfin.2025.103503","url":null,"abstract":"<div><div>This paper introduces a new index measuring the quality of public investment covering 120 economies over the period 2000–2021. It shows that scaling up public investment reduces sove-reign risk in countries with high-quality public investment but increases sovereign risk when public investment quality is low. We find that this relationship is especially pronounced in sub-investment grade countries and that the results are not driven by the possible correlation between public investment quality and overall institutional quality. We also show that scaling up public investment when its quality is high does not undermine debt sustainability.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103503"},"PeriodicalIF":3.3,"publicationDate":"2025-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797132","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-05DOI: 10.1016/j.jimonfin.2025.103500
Aariya Sen , Rudra Sensarma
Greater integration among world economies have made Emerging Market Economies (EMEs) susceptible to actions of developed countries. While the literature has studied cross-border ramifications of monetary policy decisions, the effects on financial stress and the role of policy independence of the domestic economies have been ignored. We examine the spillover effects of the US Fed’s monetary policy, including Unconventional Monetary Policy (UMP) episodes, on financial stress of EMEs. We also explore the role of EMEs’ monetary policy independence by examining whether the spillover effects are moderated by the responsiveness of an EME’s interest rates to that of the US. We analyse the impact of the US Monetary Policy Shocks (MPS) on the financial stress and monetary independence of 18 EMEs during 2008–2021. The results from Pooled Mean Group estimation reveal that Fed monetary tightening is associated with higher financial stress of EMEs. Furthermore, monetary independence of the EMEs provide a buffer from these spillover effects. These findings underscore the importance of EMEs recognizing the spillover effects of global shocks on their financial markets and the need to safeguard themselves through appropriate institutional design.
{"title":"Beyond borders: spillover effects of US monetary policy on the financial stress of emerging market economies","authors":"Aariya Sen , Rudra Sensarma","doi":"10.1016/j.jimonfin.2025.103500","DOIUrl":"10.1016/j.jimonfin.2025.103500","url":null,"abstract":"<div><div>Greater integration among world economies have made Emerging Market Economies (EMEs) susceptible to actions of developed countries. While the literature has studied cross-border ramifications of monetary policy decisions, the effects on financial stress and the role of policy independence of the domestic economies have been ignored. We examine the spillover effects of the US Fed’s monetary policy, including Unconventional Monetary Policy (UMP) episodes, on financial stress of EMEs. We also explore the role of EMEs’ monetary policy independence by examining whether the spillover effects are moderated by the responsiveness of an EME’s interest rates to that of the US. We analyse the impact of the US Monetary Policy Shocks (MPS) on the financial stress and monetary independence of 18 EMEs during 2008–2021. The results from Pooled Mean Group estimation reveal that Fed monetary tightening is associated with higher financial stress of EMEs. Furthermore, monetary independence of the EMEs provide a buffer from these spillover effects. These findings underscore the importance of EMEs recognizing the spillover effects of global shocks on their financial markets and the need to safeguard themselves through appropriate institutional design.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103500"},"PeriodicalIF":3.3,"publicationDate":"2025-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797134","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-04DOI: 10.1016/j.jimonfin.2025.103499
Antonio Fatás , Bram Gootjes , Joseph Mawejje
Fiscal rules have been shown to support fiscal discipline by improving government budget balances and restraining the growth of debt. However, questions remain about what enhances their effectiveness and how certain conditions help to build the credibility needed for their survival and success. Using data from 116 countries between 1984 and 2015, this paper studies the dynamic effects of fiscal rule adoption. It shows that although fiscal rules generally improve the cyclically adjusted primary balance, their effects depend on the time horizon under consideration and the context of adoption. In advanced economies and countries with strong political institutions, the effects strengthen over time. Conversely, in emerging markets and developing economies—especially those with weaker institutions—their impact tends to fade as time passes. The findings highlight the critical role of economic conditions and consensus building at the time of adoption. Specifically, fiscal rules introduced in times of economic hardship or under highly concentrated political power are often less effective in the medium term. Good design of fiscal rules is important, but it is no silver bullet.
{"title":"Dynamic effects of fiscal rules: Do initial conditions Matter?","authors":"Antonio Fatás , Bram Gootjes , Joseph Mawejje","doi":"10.1016/j.jimonfin.2025.103499","DOIUrl":"10.1016/j.jimonfin.2025.103499","url":null,"abstract":"<div><div>Fiscal rules have been shown to support fiscal discipline by improving government budget balances and restraining the growth of debt. However, questions remain about what enhances their effectiveness and how certain conditions help to build the credibility needed for their survival and success. Using data from 116 countries between 1984 and 2015, this paper studies the dynamic effects of fiscal rule adoption. It shows that although fiscal rules generally improve the cyclically adjusted primary balance, their effects depend on the time horizon under consideration and the context of adoption. In advanced economies and countries with strong political institutions, the effects strengthen over time. Conversely, in emerging markets and developing economies—especially those with weaker institutions—their impact tends to fade as time passes. The findings highlight the critical role of economic conditions and consensus building at the time of adoption. Specifically, fiscal rules introduced in times of economic hardship or under highly concentrated political power are often less effective in the medium term. Good design of fiscal rules is important, but it is no silver bullet.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103499"},"PeriodicalIF":3.3,"publicationDate":"2025-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145747969","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-04DOI: 10.1016/j.jimonfin.2025.103498
Fabio Fornari , Daniele Pianeselli , Andrea Zaghini
We provide empirical evidence that the pricing of green bonds tends to be highly sophisticated and is based on a two-tiered approach. When buying a green bond, investors do not look only at the presence of a green label, but also consider additional characteristics of the bond that involve the environmental score of the issuer and the soundness of the underlying project. By comparing the yields at issuance of green bonds to those of a matched control sample of conventional bonds, our baseline specification identifies a premium of 16 basis points for the green label alone. Furthermore, when the environmental score of the issuer is in the top tercile of the cross-sectional distribution, the greenium increases potentially doubling. Green certification and periods of heightened climate uncertainty also significantly affect the size of the greenium.
{"title":"Environmental score and bond pricing: It better be good, it better be green","authors":"Fabio Fornari , Daniele Pianeselli , Andrea Zaghini","doi":"10.1016/j.jimonfin.2025.103498","DOIUrl":"10.1016/j.jimonfin.2025.103498","url":null,"abstract":"<div><div>We provide empirical evidence that the pricing of green bonds tends to be highly sophisticated and is based on a two-tiered approach. When buying a green bond, investors do not look only at the presence of a green label, but also consider additional characteristics of the bond that involve the environmental score of the issuer and the soundness of the underlying project. By comparing the yields at issuance of green bonds to those of a matched control sample of conventional bonds, our baseline specification identifies a premium of 16 basis points for the green label alone. Furthermore, when the environmental score of the issuer is in the top tercile of the cross-sectional distribution, the greenium increases potentially doubling. Green certification and periods of heightened climate uncertainty also significantly affect the size of the greenium.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103498"},"PeriodicalIF":3.3,"publicationDate":"2025-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797136","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-04DOI: 10.1016/j.jimonfin.2025.103495
Nico Petz , Thomas O. Zörner
This paper analyzes business cycle synchronization and the Phillips curve relationship in Central, Eastern, and Southeastern European (CESEE) economies relative to the euro area. Using business cycles extracted with a Kalman filter and applying several synchronization measures, we find that CESEE EU countries are more closely aligned with the euro area than their non-EU counterparts. Heterogeneities are most pronounced during the early 2000s, the global financial crisis, and the euro crisis. We find strong evidence of a time-varying unemployment-inflation relationship, with a post-COVID-19 steepening of the Phillips curve and negative slope coefficients in nearly all countries. Phillips curve slopes increasingly converge toward the euro area, particularly among EU members whose post-2022 dynamics are closely aligned. These results highlight the role of EU membership in fostering economic synchronization and the need to account for time variation when assessing convergence in the face of major shocks.
{"title":"How Phillips curve dynamics enhance business cycle synchronization analysis in Central and Eastern Europe","authors":"Nico Petz , Thomas O. Zörner","doi":"10.1016/j.jimonfin.2025.103495","DOIUrl":"10.1016/j.jimonfin.2025.103495","url":null,"abstract":"<div><div>This paper analyzes business cycle synchronization and the Phillips curve relationship in Central, Eastern, and Southeastern European (CESEE) economies relative to the euro area. Using business cycles extracted with a Kalman filter and applying several synchronization measures, we find that CESEE EU countries are more closely aligned with the euro area than their non-EU counterparts. Heterogeneities are most pronounced during the early 2000s, the global financial crisis, and the euro crisis. We find strong evidence of a time-varying unemployment-inflation relationship, with a post-COVID-19 steepening of the Phillips curve and negative slope coefficients in nearly all countries. Phillips curve slopes increasingly converge toward the euro area, particularly among EU members whose post-2022 dynamics are closely aligned. These results highlight the role of EU membership in fostering economic synchronization and the need to account for time variation when assessing convergence in the face of major shocks.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103495"},"PeriodicalIF":3.3,"publicationDate":"2025-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145748024","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-04DOI: 10.1016/j.jimonfin.2025.103504
Joshua Aizenman , Hiro Ito , Donghyun Park , Jamel Saadaoui , Gazi Salah Uddin
The Global Financial Crisis and the COVID-19 pandemic were two major shocks to the world economy in the 21st century. In this study, we analyze the patterns of recessions and recoveries of 101 advanced and developing economies. We identify the turning points of recessions and expansions between 1990 and 2022, and perform cross-country analysis of domestic and external drivers of economic recovery. In addition to the standard independent variables, we include institutional development, political stability, the extent of democracy, and trade restrictions indexes, and explore their roles in explaining recessions and recovery patterns. For the whole sample, we find that deeper recessions are followed by stronger recoveries, in line with Friedman’s plucking model of the business cycle. However, the empirical evidence for the plucking model becomes weaker if institutional development is limited and trade restrictions are high. We show that recessions that create conflict and trade tensions differ sharply from those that do not, a relevant finding in the current global climate of heightened trade tensions and geopolitical uncertainty. Finally, since developing countries tend to have weaker institutions and higher trade barriers, our evidence suggests that countercyclical monetary and fiscal policy will have to play a bigger role in cushioning global shocks in those countries. This, in turn, requires more robust and credible monetary and fiscal policy frameworks.
{"title":"Global shocks, institutional development, and trade restrictions: What can we learn from crises and recoveries between 1990 and 2022?","authors":"Joshua Aizenman , Hiro Ito , Donghyun Park , Jamel Saadaoui , Gazi Salah Uddin","doi":"10.1016/j.jimonfin.2025.103504","DOIUrl":"10.1016/j.jimonfin.2025.103504","url":null,"abstract":"<div><div>The Global Financial Crisis and the COVID-19 pandemic were two major shocks to the world economy in the 21st century. In this study, we analyze the patterns of recessions and recoveries of 101 advanced and developing economies. We identify the turning points of recessions and expansions between 1990 and 2022, and perform cross-country analysis of domestic and external drivers of economic recovery. In addition to the standard independent variables, we include institutional development, political stability, the extent of democracy, and trade restrictions indexes, and explore their roles in explaining recessions and recovery patterns. For the whole sample, we find that deeper recessions are followed by stronger recoveries, in line with Friedman’s plucking model of the business cycle. However, the empirical evidence for the plucking model becomes weaker if institutional development is limited and trade restrictions are high. We show that recessions that create conflict and trade tensions differ sharply from those that do not, a relevant finding in the current global climate of heightened trade tensions and geopolitical uncertainty. Finally, since developing countries tend to have weaker institutions and higher trade barriers, our evidence suggests that countercyclical monetary and fiscal policy will have to play a bigger role in cushioning global shocks in those countries. This, in turn, requires more robust and credible monetary and fiscal policy frameworks.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103504"},"PeriodicalIF":3.3,"publicationDate":"2025-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145748022","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-03DOI: 10.1016/j.jimonfin.2025.103502
Barry Eichengreen , Akiko Terada-Hagiwara , Yothin Jinjarak
In many respects, the challenges of local government debts in the People's Republic of China (PRC) parallel those faced by members of the European Union, which also contend with high deficits and debts in a currency union. European fiscal rules shed light on issues for the PRC, including the difficulty in assessing fiscal compliance, the necessity of adaptable governance, the intricacies of political processes, and enforcement challenges in operating fiscal rules. Our assessment points to the significance of context-specific strategies for addressing local government debts with a rule-based fiscal framework for it to be operational for the PRC. We provide corroborating evidence from PRC provinces, Euro member states, and German Länder.
{"title":"Fiscal rules in monetary union: insights from Europe for the PRC","authors":"Barry Eichengreen , Akiko Terada-Hagiwara , Yothin Jinjarak","doi":"10.1016/j.jimonfin.2025.103502","DOIUrl":"10.1016/j.jimonfin.2025.103502","url":null,"abstract":"<div><div>In many respects, the challenges of local government debts in the People's Republic of China (PRC) parallel those faced by members of the European Union, which also contend with high deficits and debts in a currency union. European fiscal rules shed light on issues for the PRC, including the difficulty in assessing fiscal compliance, the necessity of adaptable governance, the intricacies of political processes, and enforcement challenges in operating fiscal rules. Our assessment points to the significance of context-specific strategies for addressing local government debts with a rule-based fiscal framework for it to be operational for the PRC. We provide corroborating evidence from PRC provinces, Euro member states, and German Länder.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"162 ","pages":"Article 103502"},"PeriodicalIF":3.3,"publicationDate":"2025-12-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145929039","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a market-indicator-based approach, this paper empirically examines whether the stability of the US and EU financial systems is affected by the digital finance revolution driven by BigTechs, FinTechs, and crypto-assets. These three sectors display different downside volatility profiles, with financial intermediaries being particularly sensitive to shocks from the crypto ecosystem only under extremely severe downturns, which are prevented in regulated equity markets. In that vein, we provide evidence that the Markets in Crypto Assets Regulation reduced financial systemic risk in EU. Overall, our empirical analysis shows that markets perceive the performance and riskiness of tech-driven companies and assets in differentiated ways, and that the transmission of shocks from digital finance ecosystems operates uniquely under varying conditions of systemic stress. Finally, we also document asymmetric spillover effects between advanced and emerging economies, with shock transmission from the US and EU to emerging markets being systematically stronger than in the reverse direction.
{"title":"Decoding the digital finance revolution: How BigTechs, FinTechs and crypto-assets shape financial systemic risk in US and EU","authors":"Domenico Curcio , Simona D’Amico , Iftekhar Hasan , Davide Vioto","doi":"10.1016/j.jimonfin.2025.103493","DOIUrl":"10.1016/j.jimonfin.2025.103493","url":null,"abstract":"<div><div>Using a market-indicator-based approach, this paper empirically examines whether the stability of the US and EU financial systems is affected by the digital finance revolution driven by BigTechs, FinTechs, and crypto-assets. These three sectors display different downside volatility profiles, with financial intermediaries being particularly sensitive to shocks from the crypto ecosystem only under extremely severe downturns, which are prevented in regulated equity markets. In that vein, we provide evidence that the Markets in Crypto Assets Regulation reduced financial systemic risk in EU. Overall, our empirical analysis shows that markets perceive the performance and riskiness of tech-driven companies and assets in differentiated ways, and that the transmission of shocks from digital finance ecosystems operates uniquely under varying conditions of systemic stress. Finally, we also document asymmetric spillover effects between advanced and emerging economies, with shock transmission from the US and EU to emerging markets being systematically stronger than in the reverse direction.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103493"},"PeriodicalIF":3.3,"publicationDate":"2025-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145748023","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-02DOI: 10.1016/j.jimonfin.2025.103492
Georgii Zvonka
We introduce tokenization as a way to upgrade Bitcoin and analyze how it affects Bitcoin’s value. The tokenization possibility explains Bitcoin’s current high valuation despite expectations that declining mining rewards will reduce security. We develop a new monetarist model with two monetary standards, network effects, and transaction costs from congestion and declining security. Without tokenization options, the model predicts a zero Bitcoin price given declining security. With tokenization, the transition may be delayed by trade-offs between network effects and congestion on Bitcoin’s blockchain versus those on a new monetary standard. As Bitcoin’s security declines, this balance shifts toward the new standard, generating equilibria where Bitcoin’s price rises with token adoption. Bitcoin-backed tokens already exist (e.g., WBTC), demonstrating practical feasibility, though empirical evidence reveals that trust in token issuers remains critical. To address this trust issue, we propose a simple soft-fork mechanism.
{"title":"Tokenization: a potential pathway for Bitcoin’s future","authors":"Georgii Zvonka","doi":"10.1016/j.jimonfin.2025.103492","DOIUrl":"10.1016/j.jimonfin.2025.103492","url":null,"abstract":"<div><div>We introduce tokenization as a way to upgrade Bitcoin and analyze how it affects Bitcoin’s value. The tokenization possibility explains Bitcoin’s current high valuation despite expectations that declining mining rewards will reduce security. We develop a new monetarist model with two monetary standards, network effects, and transaction costs from congestion and declining security. Without tokenization options, the model predicts a zero Bitcoin price given declining security. With tokenization, the transition may be delayed by trade-offs between network effects and congestion on Bitcoin’s blockchain versus those on a new monetary standard. As Bitcoin’s security declines, this balance shifts toward the new standard, generating equilibria where Bitcoin’s price rises with token adoption. Bitcoin-backed tokens already exist (e.g., WBTC), demonstrating practical feasibility, though empirical evidence reveals that trust in token issuers remains critical. To address this trust issue, we propose a simple soft-fork mechanism.</div></div>","PeriodicalId":48331,"journal":{"name":"Journal of International Money and Finance","volume":"161 ","pages":"Article 103492"},"PeriodicalIF":3.3,"publicationDate":"2025-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145797138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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