On the benefits of currency reform
Money allows agents to achieve allocations that are not possible without it. However, currency in most economies is a uniform object, and there may be incentive compatible allocations that cannot be implemented with a uniform currency. We show that currency reform, i.e., changing the monetary base b...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Elsevier B.V.
2019
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| Subjects: | |
| Online Access: | View Fulltext in Publisher |
| Summary: | Money allows agents to achieve allocations that are not possible without it. However, currency in most economies is a uniform object, and there may be incentive compatible allocations that cannot be implemented with a uniform currency. We show that currency reform, i.e., changing the monetary base by replacing one currency with another, is a powerful tool that can enable a monetary authority to achieve a desired allocation. Our monetary mechanism with currency reform is anonymous and features a nonlinear exchange rate between currencies and a monotone value of money. These results help interpret the characteristics of currency reforms observed in practice. © 2019 Elsevier B.V. |
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| ISBN: | 01651889 (ISSN) |
| DOI: | 10.1016/j.jedc.2019.04.001 |