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Private Electronic Money, Fiat Money and the Payments System

Author

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  • Andrew B. Whinston
  • Paula Hernandez-Verme
  • Haibo Huang

Abstract

Temzelides and Williamson (2001) provides valuable contribution into the private money literature, however, as pointed out by Schreft (2001), while the model provides insight about historical experiences with private paper monies, it does not provide a clear insight on how a modern system of private electronic money would work and how the necessary network shall function. Our target of this paper is to fill in that gap. We present a model with two types of private electronic currencies with one being local, and the other being global. Both of them display transactional advantages and dominate fiat money in rate of return. However, in spite of these different returns, the two electronic currencies and fiat money circulate in equilibrium. We further observe that the local electronic currency can be sold with a premium or with a discount, depending on the probability of relocation faced by the agents in this economy. The higher the probability of relocation, the higher is this discount, and the lower the share of the local electronic currency in the young creditors' portfolio

Suggested Citation

  • Andrew B. Whinston & Paula Hernandez-Verme & Haibo Huang, 2004. "Private Electronic Money, Fiat Money and the Payments System," Econometric Society 2004 North American Summer Meetings 503, Econometric Society.
    • Handle: RePEc:ecm:nasm04:503
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    Cited by:

    1. Malavika Nair & Rahimat Emozozo, 2018. "Electronic Currency In Africa: M†Pesa As Private Inside Money," Economic Affairs, Wiley Blackwell, vol. 38(2), pages 197-206, June.

    More about this item

    Keywords

    commodity money; electronic commerce; network; payment system; private money;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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