How Bitcoin Exposes Manipulations by Central Banks
Bitcoin can provide for researchers a new tool to disclose currency manipulation by central banks that considered to be impossible earlier. The point is in comparing prices for various cryptocurrencies at different crypto markets around the globe.
Though many countries assert to have a floating exchange rate thus allowing for free market to set prices for the national currency, almost all central banks are deeply involved into the market issues in practice. Unofficial means exploited by economists for tracking and changing effects like comparing prices for gold and oil or the famous Big Mac index face problems of various nature which keeps them far from being perfect. According to the latest research by economist Gina Pieters presented at the annual conference of the Royal Economic Society in March 2018, Bitcoin allows for researchers to reveal manipulations of central banks and find out capital flow control means. This can be achieved if setting efficient rate of many crypto exchanges to match deviations from the official currency rate in the country.
Her research clarifies that standard data sources used for manipulation disclosure have a number of flaws: they are expensive and often unreliable. The research shows that Bitcoin price data may skirt all these shortcomings. On top of it, the study describes ways to fix deviations and normalize data from noisy market.
The new research considers a number of cases around the world yet focusing on currency market of Argentina. The Central Bank there has cancelled peg of peso to dollar in December 2015, but local newspapers had published unofficial rate Dólar Blue before thus allowing for researchers to check correlation between Bitcoin and Dólar Blue. Finally Dólar Blue has turned to vary significantly from the official exchange rate though Bitcoin’s rate was on the same track with Dólar Blue.
As the researcher says, the method can be applied to other economic fields with unofficial exchange rate remaining unknown:
“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”.