Is a secondary currency essential? On the welfare effects of a new currency

Arbeitspapier

The coexistence of cash and digital currencies constitutes a system of parallel currencies. This paper tackles the question whether a new (digital) currency is essential: Does a new currency allow for a better resource allocation even if a fully accepted currency is in circulation and still remains in circulation? Using the dual currency search model of Kiyotaki and Wright (1993), we show how the introduction of a secondary currency affects average utility. There is some scope for a welfare improvement, the welfare effect depends on differences in returns and costs, and, in particular, the fraction of cash traders who will be replaced by digital money traders.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MAGKS Joint Discussion Paper Series in Economics ; No. 05-2022

Classification and Topics

• Classification: Wirtschaft ; Demand for Money ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Money Supply; Credit; Money Multipliers
• Subject: digital money ; dual currency regime ; welfare comparison

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fuchs, Max ; Michaelis, Jochen
• Event: Veröffentlichung
• (who): Philipps-University Marburg, School of Business and Economics
• (where): Marburg
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/254241
• Last update: 10.03.2025, 11:42 AM CET