Private Money And Bank Runs
Hongfei Sun () and
Stella Huangfu ()
No 1145, Working Paper from Economics Department, Queen's University
This paper studies bank runs in a model with coexistence of fiat money and private money. When fiat money is the only medium of exchange, there exist a bank run equilibrium and an equilibrium that achieves the optimal risk sharing. In contrast, when private money is also a medium of exchange, there exists a unique equilibrium where no one demands early withdrawals of fiat money and agents in need of liquidity only use private money to finance consumption. The unique equilibrium achieves the first-best outcome and eliminates bank runs without having resort to any government intervention.
Keywords: private money; fiat money; bank runs (search for similar items in EconPapers)
JEL-codes: E4 G2 (search for similar items in EconPapers)
Pages: 24 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1145.pdf First version 2007 (application/pdf)
Journal Article: Private money and bank runs (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1145
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