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On the Equivalence of Private and Public Money

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  • Markus K. Brunnermeier
  • Dirk Niepelt

Abstract

When does a swap between private and public money leave the equilibrium allocation and price system unchanged? To answer this question, the paper sets up a generic model of money and liquidity which identifies sources of seignorage rents and liquidity bubbles. We derive sufficient conditions for equivalence and apply them in the context of the “Chicago Plan”, cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). Our results imply that CBDC coupled with central bank pass-through funding need not imply a credit crunch nor undermine financial stability.

Suggested Citation

  • Markus K. Brunnermeier & Dirk Niepelt, 2019. "On the Equivalence of Private and Public Money," CESifo Working Paper Series 7741, CESifo.
  • Handle: RePEc:ces:ceswps:_7741
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    References listed on IDEAS

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    More about this item

    Keywords

    money creation; monetary system; inside money; outside money; equivalence; CBDC; Chicago Plan; sovereign money;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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