The impact of the expansion of virtual currencies (Bitcoin) on the amount of formal money demand (the country's money, rial) via CIA Model

The growing popularity of virtual currencies such as Bitcoin, an Internet innovation with a function similar to "fiat" money or government money, due to the high velocity and efficiency in transactions (especially overseas payments) as well as the elimination of the additional operating costs incurred by intermediaries attract the policymakers and global decision-making centers attention. The purpose of the present study is to investigate the impact of virtual currency (Bitcoin) expansion on the demand of Iranian formal money in the form of cash-in-advance model (CIA) with dynamic stochastic general equilibrium (DSGE) approach. To do so, the data of the period of 1989-2017 with seasonal sequence has been used. In the proposed model, it is assumed that households show their money demand in two forms of official money and virtual money. Maintenance and demand for virtual currency can have a significant impacts on the macroeconomic variables. In this study, the shock caused by the price of Bitcoin and its volume of transactions has been considered as an indicator of demand for virtual currency. The results show that as the demand for virtual currency increases, the demand for the formal currency declines and consequently the income of seigniorage decreases.