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

Listed author(s):
  • P Auerbach
  • G Davison
Registered author(s):

    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.

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    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0058.

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    Date of creation: Feb 1992
    Handle: RePEc:cep:cepdps:dp0058
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