A Signaling Model of Multiple Currencies
AbstractIn this paper, we demonstrate that it may be socially optimal for countries to have different currencies, even though they have no possibility of independently controlling their money supplies. We assume that agents have heterogeneous preferences over goods of different national origin, and that these preferences are private information. We prove three results. First, for a range of parameters, it is optimal for different countries to have different currencies so that buyers can more efficiently signal their preferences over goods to sellers. Second, if it is socially optimal to have different national currencies, then it is socially optimal for sellers to sell lower quantities to buyers bearing foreign currency. Finally, it is only necessary to have two monies if cross-country trade is optimal. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 2 (1999)
Issue (Month): 1 (January)
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Find related papers by JEL classification:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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