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On the Launching of a New Currency

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Author Info

  • Lotz, Sebastien
  • Rocheteau, Guillaume

Abstract

This paper studies the appropriate way of launching a new fiat currency within a dual currency search-theoretic framework. We demonstrate that legal tender laws may not be sufficient to guarantee the acceptability of the new currency, and that the old currency may continue to circulate if the enforcement power of legal tender laws is weak, and the fraction of individuals endowed with the new currency is too low. The possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws. Finally, a network externality may generate inefficiencies in the decision to switch to the new currency.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 34 (2002)
Issue (Month): 3 (August)
Pages: 563-88

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Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:3:p:563-88

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Columba, Francesco, 2007. "The Speed of Euro Adoption," MPRA Paper 5547, University Library of Munich, Germany.
  2. Francesco Columba, 2007. "Speed of euro adoption," 2007 Meeting Papers 350, Society for Economic Dynamics.
  3. Dror Goldberg, 2012. "The tax-foundation theory of fiat money," Economic Theory, Springer, vol. 50(2), pages 489-497, June.
  4. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December.
  5. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.
  6. Mikael Stenkula, 2003. "Carl Menger and the network theory of money," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 10(4), pages 587-606.

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