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Currency Substitution and Financial Innovation

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  • Guidotti, Pablo E

Abstract

This paper explores the domestic effects as well as the international transmission of financial innovation. The analysis is carried out in a cash-in-advance model with two currencies and tw o goods in which income velocity is variable because of inventory-type considerations in the determination of the demand for money. The discussion emphasizes the role of currency substitution, which occur s through the interaction between the two monies in affecting the tota l amount of time devoted to transaction activities. The role of cross-border transfers of seigniorage in determining the general equilibrium effects of financial innovation is discussed. Copyright 1993 by Ohio State University Press.

Suggested Citation

  • Guidotti, Pablo E, 1993. "Currency Substitution and Financial Innovation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 109-124, February.
  • Handle: RePEc:mcb:jmoncb:v:25:y:1993:i:1:p:109-24
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    Cited by:

    1. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society.
    2. Sibert, Anne & Liu, Lihong, 1998. "Government finance with currency substitution," Journal of International Economics, Elsevier, vol. 44(1), pages 155-172, February.
    3. C. Hueng, 2000. "The impact of foreign variables on domestic money demand: Evidence from the United Kingdom," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 24(2), pages 97-109, June.
    4. Amir Kia & Ali F. Darrat, 2003. "Modeling Money Demand under the Profit-Sharing Banking Scheme: Evidence on Policy Invariance and Long-Run Stability," Carleton Economic Papers 03-13, Carleton University, Department of Economics, revised Apr 2007.
    5. Kia, Amir, 2006. "Deficits, debt financing, monetary policy and inflation in developing countries: Internal or external factors?: Evidence from Iran," Journal of Asian Economics, Elsevier, vol. 17(5), pages 879-903, November.
    6. Amir Kia, 2006. "Deficits, Debt Financing, Monetary Policy and Inflation in Developing Countries: Internal or External Factors? Evidence from Iran," Carleton Economic Papers 06-03, Carleton University, Department of Economics, revised Nov 2006.
    7. Elena Sinelnikova-Muryleva, 2011. "Innovations in the sphere of payments and the money demand in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 157P.
    8. Rodriguez Mendizabal, Hugo, 2002. "Monetary Union and the Transaction Cost Savings of a Single Currency," Review of International Economics, Wiley Blackwell, vol. 10(2), pages 263-277, May.
    9. Hueng, C. James, 1999. "Money demand in an open-economy shopping-time model: an out-of-sample-prediction application to Canada," Journal of Economics and Business, Elsevier, vol. 51(6), pages 489-503.
    10. Cheng, Wenli & Zhang, Dingsheng, 2012. "A monetary model of China–US trade relations," Economic Modelling, Elsevier, vol. 29(2), pages 233-238.
    11. Luca Marchiori, 2018. "Monetary theory reversed: Virtual currency issuance and miners’ remuneration," BCL working papers 115, Central Bank of Luxembourg.
    12. Amir Kia, 2004. "Deficits, Debt Financing, Monetary Policy and Inflation in Developing Countries: Internal or External Factors?," Carleton Economic Papers 04-15, Carleton University, Department of Economics.
    13. Kia, Amir, 2013. "Determinants of the real exchange rate in a small open economy: Evidence from Canada," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 163-178.
    14. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.
    15. Kia, Amir & Darrat, Ali F., 2007. "Modeling money demand under the profit-sharing banking scheme: Some evidence on policy invariance and long-run stability," Global Finance Journal, Elsevier, vol. 18(1), pages 104-123.

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