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Launching of a New Currency in a Simple Random Matching Model

Listed author(s):
  • Sebastien Lotz

    (University of Paris 2)

  • Guillaume Rocheteau

    (University of Lausanne)

This paper studies the launching of a new fiat currency within a search-theoretic framework. We show that legal tender laws may not be sufficient to guarantee the acceptability of the new currency, and that the withdrawal of a large fraction of the competing currency is essential to avoid the failure of such a launching. The possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws. Finally, a network externality is identified that may generate inefficiencies in the conversion decision.

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File URL: http://fmwww.bc.edu/RePEc/es2000/0720.pdf
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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0720.

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Date of creation: 01 Aug 2000
Handle: RePEc:ecm:wc2000:0720
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  1. Craig, B. & Waller, C.J., 1999. "Currency Portfolios and Nominal Exchange Rates in a Dual Currency Search Economy," Papers 9916, London School of Economics - Centre for Labour Economics.
  2. S. Rao Aiyagari & Neil Wallace, 1995. "Government transaction policy, the medium of exchange, and welfare," Working Papers 516, Federal Reserve Bank of Minneapolis.
  3. Jovanovic, Boyan & Rosenthal, Robert W., 1988. "Anonymous sequential games," Journal of Mathematical Economics, Elsevier, vol. 17(1), pages 77-87, February.
  4. E.K. Hawkins, 1958. "The Growth Of A Money Economy In Nigeria And Ghana," Oxford Economic Papers, Oxford University Press, vol. 10(3), pages 339-354.
  5. Berentsen, Aleksander, 1998. "Monetary Policy Implications of Digital Money," Kyklos, Wiley Blackwell, vol. 51(1), pages 89-117.
  6. Caskey, John P & St Laurent, Simon, 1994. "The Susan B. Anthony Dollar and the Theory of Coin/Note Substitutions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 495-510, August.
  7. Li, Yiting & Wright, Randall, 1998. "Government Transaction Policy, Media of Exchange, and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 290-313, August.
  8. Soller Curtis, Elisabeth & Waller, Christopher J., 2000. "A search-theoretic model of legal and illegal currency," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 155-184, February.
  9. Joseph A. Ritter, 1994. "The transition from barter to fiat money," Working Papers 1994-004, Federal Reserve Bank of St. Louis.
  10. Wright, Randall, 1999. "Comment on Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 461-468, August.
  11. Francois R. Velde & Warren E. Weber & Randall Wright, "undated". "A Model of Commodity Money, With Application to Gresham's Law and the Debasement Puzzle," CARESS Working Papres 97-7, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  12. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April.
  13. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-10.
  14. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Selgin, G., 1993. "On Ensuring the Acceptability of a New Fiat Money," Papers 368, Georgia - College of Business Administration, Department of Economics.
  16. Hernán Cortés Douglas & Richard K. Abrams, 1993. "Introduction of a New National Currency; Policy, Institutional, and Technical Issues," IMF Working Papers 93/49, International Monetary Fund.
  17. 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.
  18. Ben R. Craig & Christopher J. Waller, 2000. "Dual-currency economies as multiple-payment systems," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-13.
  19. Craig, Ben, 1999. "Comment on Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 458-460, August.
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