Will the New $100 Bill Decrease Counterfeiting?
A current U.S. policy is to introduce a new style of currency that is harder to counterfeit, but not immediately to withdrawal from circulation all of the old-style currency. This policy is analyzed in a random-matching model of money, and its potential to decrease counterfeiting in the long run is shown. For various parameters of the model, three types of equilibria are found to occur. In only one does counterfeiting continue at its initial high level. In the other two, both genuine and counterfeit old-style money go out of circulation-- immediately in one and gradually in the other. There are objectives and expectations that can reasonably be imputed to policymakers, under which the policy that they have chosen can make sense.
|Date of creation:||11 Sep 1996|
|Date of revision:||11 Sep 1996|
|Note:||24 pages, LaTeX. The body of this paper appears in the Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 20, No. 3 (Summer 1996). The present version includes, in addition, a technical appendix that does not appear in the Quarterly Review.|
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- S. Rao Aiyagari & Neil Wallace & Randall Wright, 1996.
"Coexistence of money and interest-bearing securities,"
550, Federal Reserve Bank of Minneapolis.
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"Will the new $100 bill decrease counterfeiting?,"
571, Federal Reserve Bank of Minneapolis.
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