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Private Electronic Money, Fiat Money and the Payments System

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Author Info
Paula Hernandez-Verme () (School of Economics, Universidad de Guanajuato)
Haibo Huang () (Property & Portfolio Research, Inc.)
Andrew B. Whinston () (Center for Research in Electronic Commerce Department of Management and Information Systems, University of Texas at Austin)

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Abstract

This paper provides insight on how a modern system of private electronic money would work and how the necessary network shall function. We present a model with two types of private electronic currencies with one being local, and the other being global. Both of them display transactional advantages and dominate fiat money in rate of return. However, in spite of these different returns, the two electronic currencies and fiat money circulate in equilibrium. We further observe that the local electronic currency can be sold with a premium or with a discount, depending on several factors including the probability of relocation faced by the agents in this economy. The higher the probability of relocation, the higher is this discount, and the lower the share of the local electronic currency in the young creditors’ portfolio.

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Publisher Info
Paper provided by Universidad de Guanajuato in its series School of Economics Working Papers with number EC200902.

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Length: 31 pages
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Handle: RePEc:gua:wpaper:ec200902

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Postal: UCEA-Campus Marfil, Fracc. I, El Establo, Guanajuato GTO 36250
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Related research
Keywords: Private Money; Commodity Money; Network; Payments System; Competition;

Other versions of this item:

Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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This page was last updated on 2009-11-1.

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