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A model of regulated private bank-note issue

Author

Listed:
  • Ricardo de O. Cavalcanti
  • Neil Wallace

Abstract

A random-matching model (of money) is formulated in which there is complete public knowledge of the trading histories of a subset of the population, called banks, and no public knowledge of the trading histories of the complement of that subset, called nonbanks. Each person, whether a banker or a non banker, is assumed to have the technological capability to create indivisible, distinct and durable objects called notes. If outside money is indivisible and sufficiently scarce, then an optimal mechanism is shown to have note issue and destruction (redemption) by banks.

Suggested Citation

  • Ricardo de O. Cavalcanti & Neil Wallace, 1997. "A model of regulated private bank-note issue," Working Papers 581, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:581
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    References listed on IDEAS

    as
    1. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, vol. 25(1), pages 75-97, January.
    2. Narayana R. Kocherlakota & Neil Wallace, 1997. "Optimal allocations with incomplete record-keeping and no commitment," Working Papers 578, Federal Reserve Bank of Minneapolis.
    3. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    4. Hanson, John R, II, 1979. "Money in the Colonial American Economy: An Extension," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 281-286, April.
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    Keywords

    Bank notes;

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