Fiat Money and Quality Uncertainty

Urs Haegler

Economica, 1997, vol. 64, issue 256, 547-565

Abstract: The paper studies the role of money as a medium of exchange when barter trade is restricted not only by the double‐coincidence‐of‐wants requirement but also by private information about the quality of commodities. For this purpose, the model of Kiyotaki and Wright (1989) is extended to include commodities of both high and low quality. It is shown that, despite being intrinsically useless, fiat money may have value in trade because it is of uniform quality. Moreover, the introduction of a sufficiently small amount of fiat money proves to be welfare‐increasing.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:64:y:1997:i:256:p:547-565

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