Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222745 
Year of Publication: 
2019
Series/Report no.: 
ADBI Working Paper Series No. 978
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
This study assesses how effective governance institutions and de jure financial openness influence the attitude of policy makers in pursuing further financial development by allowing the use of cryptocurrency. In other words, we examine the relationships between a) de jure openness to cryptocurrency and institutional strength and b) de jure openness to cryptocurrency and de jure capital openness. Our main method of estimation is a cross-sectional ordered probit model using institutional and macroeconomic data drawn from several sources, including the Chinn-Ito index, the World Bank's Worldwide Governance Indicators, and the World Bank's World Development Indicators, among others, over the period 2010-2018. To measure the de jure openness to cryptocurrency, we compose an index of 218 economies by using the current legal and regulatory status of cryptocurrency compiled in 2018. Our results show that effective governance institutions are associated with a less restrictive regulatory stance on cryptocurrency, whereas financial openness is not found to be significant. The results imply that a certain level of institutional quality may be necessary before opening up to new forms of financial technology. As cryptocurrency is recognized as a risky speculative financial instrument, its current state of many unknowns can prevent policy makers from conducting a thorough surveillance to avoid system-wide vulnerabilities.
Subjects: 
cryptocurrency
institutions
financial regulations
financial development
financial openness
JEL: 
E44
F36
G18
G28
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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