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Launching of a New Currency in a Simple Random Matching Model

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Author Info

  • Sebastien Lotz

    (University of Paris 2)

  • Guillaume Rocheteau

    (University of Lausanne)

Abstract

This paper studies the launching of a new fiat currency within a search-theoretic framework. We show that legal tender laws may not be sufficient to guarantee the acceptability of the new currency, and that the withdrawal of a large fraction of the competing currency is essential to avoid the failure of such a launching. 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 is identified that may generate inefficiencies in the conversion decision.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0720.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0720

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  1. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  2. Ben Craig & Christopher J. Waller, 1999. "Currency portfolios and nominal exchange rates in a dual currency search economy," Working Paper 9916, Federal Reserve Bank of Cleveland.
  3. Soller, E.V. & Waller, C., 1997. "A Search Theoretic Model of Legal and Illegal Currency," Papers 97-003, Indiana - Center for Econometric Model Research.
  4. Jovanovic, Boyan & Rosenthal, Robert W., 1988. "Anonymous sequential games," Journal of Mathematical Economics, Elsevier, vol. 17(1), pages 77-87, February.
  5. Edward J. Green & Warren Weber, 1996. "Will the New $100 Bill Decrease Counterfeiting?," Macroeconomics 9609003, EconWPA, revised 11 Sep 1996.
  6. Joseph Farrell & Garth Saloner, 1986. "Installed Base and Compatibility, With Implications for Product Preannouncements," Working papers 411, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Nobuhiro Kiyotaki & Randall Wright, 1989. "A contribution to the pure theory of money," Staff Report 123, Federal Reserve Bank of Minneapolis.
  8. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
  9. Berentsen, Aleksander, 1997. "Monetary policy implications of digital money," MPRA Paper 37392, University Library of Munich, Germany.
  10. Ben R. Craig & Christopher J. Waller, 2000. "Dual-currency economies as multiple-payment systems," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-13.
  11. Hernán Cortés Douglas & Richard K. Abrams, 1993. "Introduction of a New National Currency: Policy, Institutional, and Technical Issues," IMF Working Papers 93/49, International Monetary Fund.
  12. S. Rao Aiyagari & Neil Wallace, 1995. "Government transaction policy, the medium of exchange, and welfare," Working Papers 516, Federal Reserve Bank of Minneapolis.
  13. Selgin, George A, 1994. "On Ensuring the Acceptability of a New Fiat Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 808-26, November.
  14. Li, Yiting & Wright, Randall, 1998. "Government Transaction Policy, Media of Exchange, and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 290-313, August.
  15. Craig, Ben, 1999. "Comment on Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 458-60, August.
  16. Wright, Randall, 1999. "Comment on Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 461-68, August.
  17. Caskey, John P & St Laurent, Simon, 1994. "The Susan B. Anthony Dollar and the Theory of Coin/Note Substitutions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 495-510, August.
  18. Ritter, Joseph A, 1995. "The Transition from Barter to Fiat Money," American Economic Review, American Economic Association, vol. 85(1), pages 134-49, March.
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