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On the private provision of fiat currency

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  • Berentsen, Aleksander

Abstract

This paper considers whether fiat money can be provided by a revenue-maximizing monopolist in an environment where money is essential. Two questions arise concerning the private supply of money: Is it feasible and is it optimal? Concerning the feasibility question, I show that the revenue-maximizing policy is time-consistent if the trading history of the issuer is public information and if money demanders respond to the revelation of defection by playing autarky. Concerning the optimality question, the model suggests that any private organization of the market for fiat currency is suboptimal.
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  • Berentsen, Aleksander, 2006. "On the private provision of fiat currency," European Economic Review, Elsevier, vol. 50(7), pages 1683-1698, October.
  • Handle: RePEc:eee:eecrev:v:50:y:2006:i:7:p:1683-1698
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    Cited by:

    1. Daniel Sanches, 2016. "On the Inherent Instability of Private Money," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 198-214, April.
    2. Gilbert Bougi, 2005. "Pourquoi le problème monétaire de Menger reste-t-il non résolu?," CAE Working Papers 31, Aix-Marseille Université, CERGAM.
    3. Fernández-Villaverde, Jesús & Sanches, Daniel, 2016. "Can Currency Competition Work?," CEPR Discussion Papers 11095, C.E.P.R. Discussion Papers.
    4. Pingle, Mark & Mukhopadhyay, Sankar, 2010. "Private money as a competing medium of exchange," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 541-554, June.
    5. Andolfatto, David & Berentsen, Aleksander & Waller, Christopher, 2016. "Monetary policy with asset-backed money," Journal of Economic Theory, Elsevier, vol. 164(C), pages 166-186.
    6. Daniel R. Sanches, 2013. "Banking crises and the role of bank coalitions," Working Papers 13-28, Federal Reserve Bank of Philadelphia, revised 04 Feb 2014.
    7. Waknis, Parag, 2014. "A Leviathan central bank: Modeling seigniorage in a money search model," Economics Letters, Elsevier, vol. 125(3), pages 386-391.
    8. Sanches, Daniel, 2013. "On the welfare properties of fractional reserve banking," Working Papers 13-32, Federal Reserve Bank of Philadelphia, revised 04 Feb 2013.
    9. Dwyer, Gerald P, 2014. "The Economics of Private Digital Currency," MPRA Paper 55824, University Library of Munich, Germany.
    10. Parag Waknis, 2011. "Endogenous Monetary Policy: A Leviathan Central Bank in a Lagos-Wright Economy," Working papers 2011-20, University of Connecticut, Department of Economics.
    11. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    12. Daniel Sanches, 2016. "On The Welfare Properties Of Fractional Reserve Banking," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 935-954, August.
    13. Waknis, Parag, 2017. "Competitive Supply of Money in a New Monetarist Model," MPRA Paper 75401, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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