Currency competition in a fundamental model of money

RePEc Short ID: pcr197
ORCID iD: 0000-0003-0667-1422

Camera, Gabriele; Craig, Ben R.; Waller, Christopher J.

doi:10.26509/frbc-wp-200311

Working Paper

Currency competition in a fundamental model of money

Abstract: The authors study how two fiat monies, one safe and one risky, compete in a decentralized trading environment. The equilibrium value of the two currencies, their transaction velocities and agents' spending patterns are endogenously determined. The authors derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases. They also examine when the reverse spending pattern is optimal.

Keywords: Money; Currency substitution;

https://doi.org/10.26509/frbc-wp-200311