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 Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 00.10.
Length: 46 pages
Date of creation: May 2000
Date of revision:
Publication status: Published in Journal of Money Credit and Banking, vol.34 (3), part 1, 2002, pp. 563-588
Contact details of provider:
Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC
money; search; currency reform; legal tender laws;
Other versions of this item:
- Sebastien Lotz & Guillaume Rocheteau, 2000. "Launching of a New Currency in a Simple Random Matching Model," Econometric Society World Congress 2000 Contributed Papers 0720, Econometric Society.
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-18 (All new papers)
- NEP-DGE-2000-09-18 (Dynamic General Equilibrium)
- NEP-MON-2000-09-18 (Monetary Economics)
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