IDEAS home Printed from
   My bibliography  Save this paper

Stored value cards: costly private substitutes for currency


  • Jeffrey M. Lacker


A model in which both currency and stored value cards are used to make payments is presented. I compare steady-state equilibria with and without stored value cards. Stored value cards are beneficial because they help alleviate the deadweight loss due to inflation. When the nominal interest rate is greater than the government's resource cost of providing currency, the alternative means of payment may have larger real resource costs than the currency it replaces. Stored value results in either a net increase or a net decrease in economic welfare depending upon whether average costs are below or above a certain cut-off. Quantitative restrictions on stored value can be socially beneficial because they reduce the amount of resources absorbed by the most costly stored value applications.

Suggested Citation

  • Jeffrey M. Lacker, 1996. "Stored value cards: costly private substitutes for currency," Working Paper 96-03, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:96-03

    Download full text from publisher

    File URL:
    Download Restriction: no

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Jeffrey M. Lacker, 1993. "Should we subsidize the use of currency?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-73.
    2. Schreft, Stacey L., 1992. "Welfare-improving credit controls," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 57-72, October.
    3. 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.
    4. S. Rao Aiyagari & R. Anton Braun & Zvi Eckstein, 1998. "Transaction Services, Inflation, and Welfare," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1274-1301, December.
    5. John Bryant & Neil Wallace, 1984. "A Price Discrimination Analysis of Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 279-288.
    6. Rolnick, Arthur J & Weber, Warren E, 1983. "New Evidence on the Free Banking Era," American Economic Review, American Economic Association, vol. 73(5), pages 1080-1091, December.
    7. Ireland, Peter N, 1994. "Money and Growth: An Alternative Approach," American Economic Review, American Economic Association, vol. 84(1), pages 47-65, March.
    8. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 29-47, February.
    9. Williamson, Stephen D., 1992. "Laissez-faire banking and circulating media of exchange," Journal of Financial Intermediation, Elsevier, vol. 2(2), pages 134-167, June.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Money ; Smart cards;


    Access and download statistics


    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:fedrwp:96-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Pascasio). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.