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On the benefits of currency reform

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  • Krishna, R. Vijay
  • Leukhina, Oksana

Abstract

Money allows agents to achieve allocations that are not possible without it. However, currency in most economies is a uniform object, and there may be incentive compatible allocations that cannot be implemented with a uniform currency. We show that currency reform, i.e., changing the monetary base by replacing one currency with another, is a powerful tool that can enable a monetary authority to achieve a desired allocation. Our monetary mechanism with currency reform is anonymous and features a nonlinear exchange rate between currencies and a monotone value of money. These results help interpret the characteristics of currency reforms observed in practice.

Suggested Citation

  • Krishna, R. Vijay & Leukhina, Oksana, 2019. "On the benefits of currency reform," Journal of Economic Dynamics and Control, Elsevier, vol. 102(C), pages 81-95.
    • Handle: RePEc:eee:dyncon:v:102:y:2019:i:c:p:81-95
    DOI: 10.1016/j.jedc.2019.04.001
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    More about this item

    Keywords

    Currency reform; Monetary models;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other

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