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Private Electronic Money, Fiat Money and the Payments System

Andrew B. Whinston, Paula Hernandez-Verme () and Haibo Huang ()

No 503, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: Temzelides and Williamson (2001) provides valuable contribution into the private money literature, however, as pointed out by Schreft (2001), while the model provides insight about historical experiences with private paper monies, it does not provide a clear insight on how a modern system of private electronic money would work and how the necessary network shall function. Our target of this paper is to fill in that gap. We present a model with two types of private electronic currencies with one being local, and the other being global. Both of them display transactional advantages and dominate fiat money in rate of return. However, in spite of these different returns, the two electronic currencies and fiat money circulate in equilibrium. We further observe that the local electronic currency can be sold with a premium or with a discount, depending on the probability of relocation faced by the agents in this economy. The higher the probability of relocation, the higher is this discount, and the lower the share of the local electronic currency in the young creditors' portfolio

Keywords: commodity money; electronic commerce; network; payment system; private money (search for similar items in EconPapers)
JEL-codes: E41 E52 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
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Working Paper: Private Electronic Money, Fiat Money and the Payments System (2009) Downloads
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