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Competing Currencies in the Laboratory

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  • Janet Hua Jiang
  • Cathy Zhang

Abstract

We investigate competition between two intrinsically worthless currencies as a result of decentralized interactions between human subjects. We design a laboratory experiment based on a simple two-country, two-currency search model to study factors that affect circulation patterns and equilibrium selection. Experimental results indicate foreign currency acceptance rates decrease with relative country size but are not significantly affected by the degree of integration. The laboratory economies tend to converge to a unified currency regime where both currencies circulate at home and abroad, even if other regimes are theoretical possibilities. Introducing government transaction policies biased towards domestic currency significantly reduces the acceptability of foreign currency. These findings suggest government policies can serve as a coordination device when multiple currencies are available.

Suggested Citation

  • Janet Hua Jiang & Cathy Zhang, 2017. "Competing Currencies in the Laboratory," Staff Working Papers 17-53, Bank of Canada.
  • Handle: RePEc:bca:bocawp:17-53
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    Cited by:

    1. Douglas Davis & Oleg Korenok & Peter Norman & Bruno Sultanum & Randall Wright, 2019. "Playing with Money," Working Paper 19-2, Federal Reserve Bank of Richmond, revised 07 Feb 2019.

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    More about this item

    Keywords

    Central bank research; Digital Currencies;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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