TY - JOUR
T1 - On the launching of a new currency
AU - Lotz, Sébastien
AU - Rocheteau, Guillaume
PY - 2002/8
Y1 - 2002/8
N2 - This paper studies the appropriate way of launching a new fiat currency within a dual currency search-theoretic framework. We demonstrate that legal tender laws may not be sufficient to guarantee the acceptability of the new currency, and that the old currency may continue to circulate if the enforcement power of legal tender laws is weak, and the fraction of individuals endowed with the new currency is too low. The possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws. Finally, a network externality may generate inefficiencies in the decision to switch to the new currency.
AB - This paper studies the appropriate way of launching a new fiat currency within a dual currency search-theoretic framework. We demonstrate that legal tender laws may not be sufficient to guarantee the acceptability of the new currency, and that the old currency may continue to circulate if the enforcement power of legal tender laws is weak, and the fraction of individuals endowed with the new currency is too low. The possibility of converting the old currency into the new one can ease the transition to the new currency only if it is combined with strict legal tender laws. Finally, a network externality may generate inefficiencies in the decision to switch to the new currency.
UR - http://www.scopus.com/inward/record.url?scp=0036677598&partnerID=8YFLogxK
U2 - 10.1353/mcb.2002.0003
DO - 10.1353/mcb.2002.0003
M3 - Article
SN - 0022-2879
VL - 34
SP - 563
EP - 588
JO - Journal of Money, Credit and Banking
JF - Journal of Money, Credit and Banking
IS - 3 I
ER -