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Endogenous multiple currencies

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  • Antoine Martin

Abstract

I study a model of multiple currencies in which sellers can choose the currency they will accept. I provide conditions that are necessary and sufficient to avoid indeterminacy of the exchange rate. Under these assumptions, all stable equilibria have the property that all sellers in the same country accept the same currency. Thus stable equilibria are either single currency or national currencies equilibria. I also show that currency substitution occurs as an endogenous response to high growth in the stock of a currency.

Suggested Citation

  • Antoine Martin, 2002. "Endogenous multiple currencies," Research Working Paper RWP 02-03, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:rwp02-03
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    Cited by:

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    2. Waknis, Parag, 2017. "Competitive Supply of Money in a New Monetarist Model," MPRA Paper 75401, University Library of Munich, Germany.
    3. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    4. 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.

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    Keywords

    Money; Currency substitution;

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