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When Does the Introduction of a New Currency Improve Welfare?

Max Fuchs () and Jochen Michaelis
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Max Fuchs: University of Kassel

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: In recent years, cryptocurrencies such as Bitcoin have emerged, in upcoming years, corporate currencies such as Libra (Diem) and central bank digital currencies will emerge even in low-inflation developed economies. Using the dual currency search model of Kiyotaki and Wright (1993), we show how the introduction of a supplement to traditional money affects average utility. The room for a welfare improvement depends on differences in returns and costs, but, in particular, on the fraction of cash traders who will be replaced by digital money traders.

Keywords: digital money; dual currency regime; welfare comparison (search for similar items in EconPapers)
JEL-codes: E41 E42 E51 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2021
New Economics Papers: this item is included in nep-mac, nep-mon, nep-ore and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:202106

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