Launching of a New Currency in a Simple Random Matching Model
AbstractThis 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.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0720.
Date of creation: 01 Aug 2000
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Other versions of this item:
- Sébastien LOTZ & Guillaume ROCHETEAU, 2000. "Launching of a New Currency in a Simple Random Matching Model," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 00.10, Université de Lausanne, Faculté des HEC, DEEP.
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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