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Is a Secondary Currency Essential? – On the Welfare Effects of a New Currency
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...
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| Published in: | MAGKS - Joint Discussion Paper Series in Economics (Band 05-2022) |
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| Main Authors: | , |
| Format: | Article |
| Language: | English |
| Published: |
2022
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| Subjects: | |
| Online Access: | PDF Full Text |
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| Summary: | 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. |
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| Physical Description: | 19 Pages |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0714 |