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Private Electronic Money, Fiat Money and the Payments System

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Paula Hernandez-Verme & Haibo Huang & Andrew B. Whinston, 2009. "Private Electronic Money, Fiat Money and the Payments System," Department of Economics and Finance Working Papers EC200902, Universidad de Guanajuato, Department of Economics and Finance.
  • Handle: RePEc:gua:wpaper:ec200902
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    File URL: http://economia.ugto.org/WorkingPapers/EC200902.pdf
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    More about this item

    Keywords

    Private Money; Commodity Money; Network; Payments System; Competition;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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