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The fiscal arithmetic of a dual currency regime

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  • Lippi, Francesco

Abstract

There are several real world examples of local governments that, faced with budget problems, circulate a fiat token in parallel to the official currency. A well known case is the Argentinian “Patacon†, printed by the province of Buenos Aires during the crisis of 2001. We present a simple model to analyze the workings of monetary equilibria where the parallel currency is valued in equilibrium and discuss its consequence for real allocations in terms of an equivalent fiscal policy. We briefly discuss different model specifications and their fit to alternative historic experiences.

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  • Lippi, Francesco, 2020. "The fiscal arithmetic of a dual currency regime," CEPR Discussion Papers 14657, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14657
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    References listed on IDEAS

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    1. Aiyagari, S. Rao & Wallace, Neil, 1997. "Government Transaction Policy, the Medium of Exchange, and Welfare," Journal of Economic Theory, Elsevier, vol. 74(1), pages 1-18, May.
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    4. Augusto de la Torre & Eduardo Levy Yeyati & Sergio L. Schmukler, 2003. "Living and Dying with Hard Pegs: The Rise and Fall of Argentina’s Currency Board," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 43-108, January.
    5. Starr, Ross M, 1974. "The Price of Money in a Pure Exchange Monetary Economy with Taxation," Econometrica, Econometric Society, vol. 42(1), pages 45-54, January.
    6. Naqvi, Mona & Southgate, James, 2013. "Banknotes, local currencies and central bank objectives," Bank of England Quarterly Bulletin, Bank of England, vol. 53(4), pages 317-325.
    7. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
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    Cited by:

    1. Ionela Munteanu & Flavius Valentin Jakubowicz, 2022. "A Bibliometric Analysis of Scientific Accounting Studies Concerning Fiscal Topics," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 920-926, Decembrie.

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    More about this item

    Keywords

    Parallelcurrency; Dual currency; Monetary economy; Pure currency; Scrip; Chartalism;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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