Money and Exchange Rates from a Computational Perspective

Money changes incrementally with technological growth. In this set of three papers, we examine money and exchange rates using practitioner technologies through an assessment exercise, a counterfactual exercise, and simulation modeling of a new application of monetary policy. APound-Centric Look at the Pound vs. Krona Exchange Rate Movement from 1844 to 1965 A longitudinal (1844-1965) assessment of the British pound sterling and Swedish krona exchange rate was constructed utilizing The London Times article news sentiment, gold price, gross domestic product, and other relevant metrics to create a dynamic system state-based model to predict the British pound sterling and Swedish krona yearly exchange rate. The model slightly outperforms a naive random walk forecasting model. Why Private Cryptocurrencies Cannot Serve as International Reserves but Central Bank Digital Currencies Can This chapter begins with a recap of Bitcoin and its primary motivation and mechanisms, followed by an overview of the top 10 cryptocurrencies by market capitalization. The focus is on cryptocurrency price dynamics and volatility relative to those of fiat money and gold, assets that have traditionally served the functions of money and as international reserves. Counterfactual analysis was performed using the Bank of England’s foreign currency reserves to determine the hypothetical performance in terms of the relative volatility of two alternative reserve portfolios, including Bitcoin and Ethereum. Revisiting the functions of money and international reserves, it is outlined why private cryptocurrencies do not meet the requirements for both money and international reserve assets, whereas central bank digital currencies do meet these requirements. The chapter concludes with a discussion of areas 1where blockchain-based and financial innovations could be beneficial in international trade, payments, banking, and finance. Complex System Modeling of Community Currencies A complex dynamic system subpopulation model for the construction and validation of a novel form of local complementary currency is proposed, with the case study of Grassroots Economics Foundation’s Community Inclusion Currency recently implemented in Kenya. The implementation is framed in an economic context and bridges the gap with related literature in computer science. Community currencies can act as a local liquidity-provision institutional device in poor or isolated economic regions to increase their internal exchange and economic value-added, serving as a market-based mechanism to alleviate poverty.