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Secondary Currencies and High Inflation. Implications for Monetary Theory and Policy

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  • P Auerbach
  • G Davison

Abstract

Existing economic models treat secondary currencies as damaging during inflationary period. Such an approach emerges from the perspective of a 'normal' economy with a single, relatively stable currency. During periods of high inflation, however, this perspective is deceptive, with the widespread emergence of commodity 'monies' as substitutes for the primary currency. In the economic dislocation associated with high inflation, the use of secondary currencies associated with high inflation, the use of secondary currencies facilitates the preservation of real economic activity. Furthermore, governmental acquiescence to the public's use of a secondary currencies adds to the credibility of official promises to defend the value of the primary currency.

Suggested Citation

  • P Auerbach & G Davison, 1992. "Secondary Currencies and High Inflation. Implications for Monetary Theory and Policy," CEP Discussion Papers dp0058, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0058
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    Cited by:

    1. Rostowski, J., 1993. "The inter-enterprise debt explosion in the former Soviet Union: causes, consequences, cures," LSE Research Online Documents on Economics 20968, London School of Economics and Political Science, LSE Library.

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