When Does the Introduction of a New Currency Improve Welfare?
Max Fuchs () and
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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)
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
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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