On Money As a Latent Medium of Exchange

Shengxing Zhang and Ricardo Lagos

No 14051, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We formulate a generalization of the traditional medium-of-exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions directly with money strengthens the stance of sellers of goods and services vis-a-vis intermediaries. We show this mechanism is operative even for sellers who never exercise the option to sell for cash, and that these latent money demand considerations imply monetary policy remains effective through medium-of-exchange channels even if the share of monetary transactions is arbitrarily small.

Keywords: Cashless; Credit; Liquidity; Money; Monetary policy (search for similar items in EconPapers)
JEL-codes: D83 E52 G12 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
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