IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwp/0311.html
   My bibliography  Save this paper

Currency competition in a fundamental model of money

Author

Listed:
  • Gabriele Camera
  • Ben R. Craig
  • Christopher J. Waller

Abstract

The authors study how two fiat monies, one safe and one risky, compete in a decentralized trading environment. The equilibrium value of the two currencies, their transaction velocities and agents' spending patterns are endogenously determined. The authors derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases. They also examine when the reverse spending pattern is optimal.

Suggested Citation

  • Gabriele Camera & Ben R. Craig & Christopher J. Waller, 2003. "Currency competition in a fundamental model of money," Working Papers (Old Series) 0311, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0311
    DOI: 10.26509/frbc-wp-200311
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-wp-200311
    File Function: Persistent link
    Download Restriction: no
    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/working-papers/2003/wp-0311-currency-competition-pdf.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-wp-200311?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Head, Allen & Shi, Shouyong, 2003. "A fundamental theory of exchange rates and direct currency trades," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1555-1591, October.
    2. Ben R. Craig & Christopher J. Waller, 1999. "Currency portfolios and nominal exchange rates in a dual currency search economy," Working Papers (Old Series) 9916, Federal Reserve Bank of Cleveland.
    3. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 397-419, June.
    4. Camera, Gabriele & Corbae, Dean, 1999. "Money and Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 985-1008, November.
    5. Sibert, Anne & Liu, Lihong, 1998. "Government finance with currency substitution," Journal of International Economics, Elsevier, vol. 44(1), pages 155-172, February.
    6. 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.
    7. Chang, Roberto, 1994. "Endogenous Currency Substitution, Inflationary Finance, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 903-916, November.
    8. Engineer, Merwan, 2000. "Currency transactions costs and competing fiat currencies," Journal of International Economics, Elsevier, vol. 52(1), pages 113-136, October.
    9. Ruilin Zhou, 1997. "Currency Exchange in a Random Search Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 289-310.
    10. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
    11. Waller, Christopher Jude & Craig, Ben R., 2001. "Currency Portfolios and Currency Exchange in a Search Economy," Discussion Paper Series 1: Economic Studies 2001,15, Deutsche Bundesbank.
    12. Li, Victor E, 1995. "The Optimal Taxation of Fiat Money in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 927-942, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Madison, Florian, 2024. "A microfounded approach to currency substitution and government policy," Journal of Economic Theory, Elsevier, vol. 219(C).
    2. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    3. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society.
    4. 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.
    5. Flandreau, Marc & Jobst, Clemens, 2006. "The Empirics of International Currencies: Historical Evidence," CEPR Discussion Papers 5529, C.E.P.R. Discussion Papers.
    6. Craig, Ben & Waller, C.J.Christopher J., 2004. "Dollarization and currency exchange," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 671-689, May.
    7. Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
    8. Davoodalhosseini, Seyed Mohammadreza, 2022. "Central bank digital currency and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 142(C).
    9. Marc Flandreau & Clemens Jobst, 2006. "The Empirics of International Currencies: Evidence from the 19th Century," Working Papers hal-01065631, HAL.
    10. Martin, Antoine, 2006. "Endogenous Multiple Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 245-262, February.
    11. repec:hal:wpspec:info:hdl:2441/669 is not listed on IDEAS
    12. Miguel Lebre de Freitas & Francisco José Veiga, 2006. "Currency substitution, portfolio diversification, and money demand," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 719-743, August.
    13. Yu Zhu & Scott Hendry, 2019. "A Framework for Analyzing Monetary Policy in an Economy with E-money," Staff Working Papers 19-1, Bank of Canada.
    14. Dutu, Richard, 2008. "Currency interdependence and dollarization," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1673-1687, December.
    15. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
    16. repec:spo:wpecon:info:hdl:2441/669 is not listed on IDEAS
    17. Marc Flandreau & Clemens Jobst, 2009. "The Empirics of International Currencies: Network Externalities, History and Persistence," Economic Journal, Royal Economic Society, vol. 119(537), pages 643-664, April.
    18. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    19. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96, Elsevier.
    20. repec:spo:wpmain:info:hdl:2441/669 is not listed on IDEAS
    21. 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.
    22. Waller, Christopher Jude & Craig, Ben R., 2001. "Currency Portfolios and Currency Exchange in a Search Economy," Discussion Paper Series 1: Economic Studies 2001,15, Deutsche Bundesbank.
    23. repec:hal:spmain:info:hdl:2441/669 is not listed on IDEAS
    24. Engineer, Merwan, 2000. "Currency transactions costs and competing fiat currencies," Journal of International Economics, Elsevier, vol. 52(1), pages 113-136, October.

    More about this item

    Keywords

    Money; Currency substitution;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:0311. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.