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A benefit of uniform currency

Author

Listed:
  • Ravikumar, B
  • Wallace, Neil

Abstract

The role of distinct currencies is studied using a random-matching model with randomized trades. The equilibrium concept is the pairwise core in meetings. We show that there exist equilibria in which home and foreign currency play distinct roles and in which the quantities of trade and output are less than the optimal quantities. The benefit of a uniform currency is the elimination of such inferior equilibria. Specifically, any equilibrium in which home and foreign currency play distinct roles is dominated in terms of ex ante welfare by the best one-currency equilibrium -- for some parameters weakly, for some strongly.

Suggested Citation

  • Ravikumar, B & Wallace, Neil, 2002. "A benefit of uniform currency," MPRA Paper 22951, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:22951
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

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    3. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2007. "Friedman Meets Hosios: Efficiency in Search Models of Money," Economic Journal, Royal Economic Society, vol. 117(516), pages 174-195, January.
    4. Warren E. Weber, 2005. "Were U.S. State Banknotes Priced as Securities?," 2005 Meeting Papers 306, Society for Economic Dynamics.
    5. Manjong Lee, 2008. "Is Uniform Money Always Better than Separate Monies?," Open Economies Review, Springer, vol. 19(1), pages 21-42, February.
    6. Warren E. Weber, 2003. "Banknote prices in the United States prior to 1860," Working Papers 629, Federal Reserve Bank of Minneapolis.
    7. Li, Yiting & Matsui, Akihiko, 2009. "A theory of international currency: Competition and discipline," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 407-426, December.
    8. Alexei Deviatov & Igor Dodonov, 2006. "Exchange-rate volatility, exchange-rate disconnect, and the failure of volatility conservation," Working Papers w0079, Center for Economic and Financial Research (CEFIR).
    9. Flandreau, Marc & Jobst, Clemens, 2006. "The Empirics of International Currencies: Historical Evidence," CEPR Discussion Papers 5529, C.E.P.R. Discussion Papers.
    10. Martin, Antoine, 2006. "Endogenous Multiple Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 245-262, February.
    11. Toyofuku, Kenta, 2021. "Unit of account, sovereign debt, and optimal currency area," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
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    13. Hendrickson, Joshua R. & Park, Jaevin, 2021. "The case against eliminating large denomination bills," Journal of Macroeconomics, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    uniform currency; random matching; pairwise core; dollarization;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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