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Abstract

We study the interplay between competition and trust as efficiency-enhancing mechanims in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on effciency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved. The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2011/24.

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Date of creation: 2011
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Handle: RePEc:eui:euiwps:eco2011/24

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Related research

Keywords: Currency competition; Trust; Inflation;

Other versions of this item:

Find related papers by JEL classification:

• E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
• E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
• E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
• E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

This paper has been announced in the following NEP Reports:

• NEP-ALL-2012-03-21 (All new papers)
• NEP-MAC-2012-03-21 (Macroeconomics)
• NEP-MON-2012-03-21 (Monetary Economics)
• NEP-SOC-2012-03-21 (Social Norms & Social Capital)

References

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1. Stokey, Nancy L., 1991. "Credible public policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 627-656, October.
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4. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
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   • Charles W. Calomiris & Charles M. Kahn, 1996. "The efficiency of self-regulated payments systems: learning from the Suffolk System," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 766-803.
   • Calomiris, Charles W & Kahn, Charles M, 1996. "The Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 766-97, November.
7. Jonathan Levin, 2009. "The Dynamics of Collective Reputation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 27.
   
   • Jonathan Levin, 2009. "The Dynamics of Collective Reputation," Discussion Papers 08-024, Stanford Institute for Economic Policy Research.
8. Battigalli, Pierpaolo, 1996. "Strategic Independence and Perfect Bayesian Equilibria," Journal of Economic Theory, Elsevier, vol. 70(1), pages 201-234, July.
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10. Ireland, Peter N., 1997. "Sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 87-108, November.
11. Bils, Mark, 1989. "Pricing in a Customer Market," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 699-718, November.
12. Taub, Bart, 1986. "Asymptotic Properties of Pipeline Control of the Money Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 647-65, October.
13. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(4), pages 423-53, November.
14. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:

1. Trust in private money
   by Economic Logician in Economic Logic on 2011-08-19 14:11:00
2. Money is an Experience Good: Competition and Trust in the Private Provision of Money
   by Christian Zimmermann in NEP-DGE blog on 2012-05-20 02:18:16

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1. Economic Logic blog

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