Launching of a New Currency in a Simple Random Matching Model

Sébastien Lotz () and Guillaume Rocheteau ()

Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) from Université de Lausanne, Faculté des HEC, DEEP

Abstract: This paper studies the launching of a new fiat currency within a search-theoretic framework. We show that legal tender laws may not be sufficient to guarantee the acceptability of the new currency, and that the withdrawal of a large fraction of the competing currency is essential to avoid the failure of such a launching. The possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws. Finally, a network externality is identified that may generate inefficiencies in the conversion decision.

Keywords: money; search; currency reform; legal tender laws (search for similar items in EconPapers)
JEL-codes: E40 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mon
Date: 2000-05

Published in Journal of Money Credit and Banking, vol.34 (3), part 1, 2002, pp. 563-588

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http://www.hec.unil.ch/deep/textes/00.10.pdf (application/pdf)

Related works:
Working Paper: Launching of a New Currency in a Simple Random Matching Model (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:lau:crdeep:00.10

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