Launching of a New Currency in a Simple Random Matching Model

Sébastien Lotz and Guillaume Rocheteau

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

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: D83 E40 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2000-05
New Economics Papers: this item is included in nep-dge and nep-mon
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Citations: View citations in EconPapers (1)

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: https://EconPapers.repec.org/RePEc:lau:crdeep:00.10

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