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Crowding out in a Dual Currency Regime? Digital versus Fiat Currency

Author

Listed:
  • KiHoon Hong

    () (College of Business, Hongik University)

  • Kyounghoon Park

    () (Economic Research Institute, The Bank of Korea)

  • Jongmin Yu

    () (School of Economics, Hongik University)

Abstract

In this paper, we analyse a dual currency regime with fiat currency and digital currency and investigate potential crowding-out effects of fiat currency or digital currency under the framework of the traditional monetary economic model. We find that crowding out only occurs under extreme assumptions, i.e. extremely high costs associated with the use (medium of exchange and store of value) of one currency and extremely low costs associated with the use of the other currency.

Suggested Citation

  • KiHoon Hong & Kyounghoon Park & Jongmin Yu, 2017. "Crowding out in a Dual Currency Regime? Digital versus Fiat Currency," Working Papers 2017-13, Economic Research Institute, Bank of Korea.
  • Handle: RePEc:bok:wpaper:1713
    as

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    File URL: http://imer.bok.or.kr/attach/imer_eng/2902/2017/04/1492735556275.pdf
    File Function: Working Paper, 2017
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    References listed on IDEAS

    as
    1. Rolnick, Arthur J & Weber, Warren E, 1986. "Gresham's Law or Gresham's Fallacy?," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 185-199, February.
    2. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Stabilization policy and the costs of dollarization," Proceedings, Federal Reserve Bank of Cleveland, pages 482-517.
    3. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    4. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    5. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    6. Cooley, Thomas F & Quadrini, Vincenzo, 2001. "The Cost of Losing Monetary Independence: The Case of Mexico," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 370-397, May.
    7. Michael Kumhof & Jaromir Benes, 2012. "The Chicago Plan Revisited," IMF Working Papers 12/202, International Monetary Fund.
    8. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
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    1. repec:nzb:nzbbul:apr2018:3 is not listed on IDEAS

    More about this item

    Keywords

    Bitcoin; Digital currency; Dual currency; Crowding out;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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