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On the Equivalence of Private and Public Money

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  • Markus K. Brunnermeier, Dirk Niepelt

Abstract

We develop a generic model of money and liquidity that identi es sources of liquidity bubbles and seignorage rents. We provide sucient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the \Chicago Plan," cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine nancial stability.

Suggested Citation

  • Markus K. Brunnermeier, Dirk Niepelt, 2019. "On the Equivalence of Private and Public Money," Diskussionsschriften dp1903, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp1903
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    References listed on IDEAS

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    7. Christophe Chamley & Herakles Polemarchakis, 1984. "Assets, General Equilibrium and the Neutrality of Money," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 129-138.
    8. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
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    11. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    12. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-220, April.
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    Keywords

    Money creation; monetary system; inside money; outside money; equivalence; CBDC; Chicago Plan; sovereign money;

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