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Will the New $100 Bill Decrease Counterfeiting?

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  • Edward J. Green

    (Federal Reserve Bank of Minneapolis)

  • Warren Weber

Abstract

A current U.S. policy is to introduce a new style of currency that is harder to counterfeit, but not immediately to withdrawal from circulation all of the old-style currency. This policy is analyzed in a random-matching model of money, and its potential to decrease counterfeiting in the long run is shown. For various parameters of the model, three types of equilibria are found to occur. In only one does counterfeiting continue at its initial high level. In the other two, both genuine and counterfeit old-style money go out of circulation-- immediately in one and gradually in the other. There are objectives and expectations that can reasonably be imputed to policymakers, under which the policy that they have chosen can make sense.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 9609003.

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Length: 24 pages
Date of creation: 11 Sep 1996
Date of revision: 11 Sep 1996
Handle: RePEc:wpa:wuwpma:9609003

Note: 24 pages, LaTeX. The body of this paper appears in the Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 20, No. 3 (Summer 1996). The present version includes, in addition, a technical appendix that does not appear in the Quarterly Review.
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  1. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  2. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 397-419, June.
  3. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Working Papers 571, Federal Reserve Bank of Minneapolis.
  4. Klaus Kultti, 1996. "A monetary economy with counterfeiting," Journal of Economics, Springer, vol. 63(2), pages 175-186, June.
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