NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Can Currency Competition Work?

Jesús Fernández-Villaverde, Daniel Sanches

NBER Working Paper No. 22157
Issued in April 2016
NBER Program(s):Economic Fluctuations and Growth

Can competition among privately issued fiat currencies such as Bitcoin or Ethereum work? Only sometimes. To show this, we build a model of competition among privately issued fiat currencies. We modify the current workhorse of monetary economics, the Lagos-Wright environment, by including entrepreneurs who can issue their own fiat currencies in order to maximize their utility. Otherwise, the model is standard. We show that there exists an equilibrium in which price stability is consistent with competing private monies, but also that there exists a continuum of equilibrium trajectories with the property that the value of private currencies monotonically converges to zero. These latter equilibria disappear, however, when we introduce productive capital. We also investigate the properties of hybrid monetary arrangements with private and government monies, of automata issuing money, and the role of network effects.

download in pdf format
   (522 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22157

Users who downloaded this paper also downloaded* these:
Yermack w19747 Is Bitcoin a Real Currency? An economic appraisal
Rysman and Schuh w22358 New Innovations in Payments
Bordo and Levin w23711 Central Bank Digital Currency and the Future of Monetary Policy
Catalini and Gans w22952 Some Simple Economics of the Blockchain
Raskin and Yermack w22238 Digital Currencies, Decentralized Ledgers, and the Future of Central Banking
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us