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Alternative Monies and the Demand for Media of Exchange

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  • Santomero, Anthony M
  • Seater, John J

Abstract

A new value transfer system using alternative monies is emerging as a result of innovations such as prepaid cards, smart cards and the so-called electronic purse. This paper begins with a review of the changes in the value transfer system that are occurring in the economy. It then proceeds to analyze consumer reaction to this trend. It investigates the effect of variations in the number and type of monies on consumer transactions demand. We investigate the behavior of a representative agent faced with a choice of money with which to transact and ask how variations in their characteristics will affect the consumer's choice of transactions vehicle, transaction frequency and average balances in various media. Interestingly, the results are not transparent. Copyright 1996 by Ohio State University Press.

Suggested Citation

  • Santomero, Anthony M & Seater, John J, 1996. "Alternative Monies and the Demand for Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 942-960, November.
    • Handle: RePEc:mcb:jmoncb:v:28:y:1996:i:4:p:942-60
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    1. Jacob A. Frenkel & Boyan Jovanovic, 1980. "On Transactions and Precautionary Demand for Money," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(1), pages 25-43.
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    3. David B. Humphrey & Lawrence B. Pulley & Jukka M. Vesala, 1996. "Cash, paper, and electronic payments: a cross-country analysis," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 914-941.
    4. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    5. David S. Laster & John Wenninger, 1995. "The electronic purse," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(Apr).
    6. Barro, Robert J, 1976. "Integral Constraints and Aggregation in an Inventory Model of Money Demand," Journal of Finance, American Finance Association, vol. 31(1), pages 77-88, March.
    7. Romer, David, 1987. "The monetary transmission mechanism in a general equilibrium version of the baumol-tobin model," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 105-122, July.
    8. John P. Caskey & Gordon H. Sellon, 1994. "Is the debit card revolution finally here?," Economic Review, Federal Reserve Bank of Kansas City, vol. 79(Q IV), pages 79-95.
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