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On the Equivalence of Private and Public Money

Markus K. Brunnermeier, Dirk Niepelt

NBER Working Paper No. 25877
Issued in May 2019
NBER Program(s):The Asset Pricing Program, The Corporate Finance Program, The International Finance and Macroeconomics Program, The Monetary Economics Program

We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan,'' cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.

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Document Object Identifier (DOI): 10.3386/w25877

Published: Markus K. Brunnermeier & Dirk Niepelt, 2019. "On the Equivalence of Private and Public Money," Journal of Monetary Economics, .

 
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