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Private Electronic Money, Fiat Money and the Payments System

  • Paula Hernandez-Verme


    (Department of Economics and Finance, Universidad de Guanajuato)

  • Haibo Huang


    (Property & Portfolio Research, Inc.)

  • Andrew B. Whinston


    (Center for Research in Electronic Commerce Department of Management and Information Systems, University of Texas at Austin)

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    This paper provides insight on how a modern system of private electronic money would work and how the necessary network shall function. We present a model with two types of private electronic currencies with one being local, and the other being global. Both of them display transactional advantages and dominate fiat money in rate of return. However, in spite of these different returns, the two electronic currencies and fiat money circulate in equilibrium. We further observe that the local electronic currency can be sold with a premium or with a discount, depending on several factors including the probability of relocation faced by the agents in this economy. The higher the probability of relocation, the higher is this discount, and the lower the share of the local electronic currency in the young creditors’ portfolio.

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    Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC200902.

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    Length: 31 pages
    Date of creation: Jul 2009
    Date of revision:
    Handle: RePEc:gua:wpaper:ec200902
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