The Demand for Digital Money and its Impact on the Economy

Joilson Dias (), Moacir José da Silva () and Maria Helena Ambrósio Dias
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Moacir José da Silva: State University of Maringá
Maria Helena Ambrósio Dias: State University of Maringá

Brazilian Electronic Journal of Economics, 1999, vol. 2, issue 2

Abstract: In this paper we develop a new demand for money that incorporates the major characteristic of digital money, privacy. This new demand is an extension of the theories of Clower (1968) and Hayek (1978). According to the former author, the demand for a new type of money will depend upon its reduction in transaction costs. For the latter author there is an inherent element in the demand for money. This element is the heterogeneity which generates a need for different types of money. We combine these two conditions with our theory which relates the new demand for money, with the condition of undertaking transactions anonymously and privately. As a result of privacy and of a reduction in transaction costs there will be an impact on fiscal and monetary policy. Using data referent to Brazil, we analyze the impact on the monetary policy. The substitution of 1% of M1 by digital money may cause a monetary expansion amounting to R$ 2.4 billion, depending on compulsory tax.

Date: 1999

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