A Local Currency in a Dollarized Economy
Author(s)
Sokchea Lim*
ABSTRACT
The paper uses a dual-currency search theoretic approach to demonstrate that it is possible to induce the acceptance of a local currency in a dollarized economy. In the model, we assume that a foreign currency is in full circulation and the government policy tool is the convertibility of the local currency to the foreign currency. We show that the economy can achieve equilibria where two monies are in circulation if the government can raise a sufficiently high probability of exchange between the two currencies.
The paper uses a dual-currency search theoretic approach to demonstrate that it is possible to induce the acceptance of a local currency in a dollarized economy. In the model, we assume that a foreign currency is in full circulation and the government policy tool is the convertibility of the local currency to the foreign currency. We show that the economy can achieve equilibria where two monies are in circulation if the government can raise a sufficiently high probability of exchange between the two currencies.
Cite this paper
S. Lim, "A Local Currency in a Dollarized Economy," Modern Economy, Vol. 3 No. 5, 2012, pp. 671-674. doi: 10.4236/me.2012.35086.
S. Lim, "A Local Currency in a Dollarized Economy," Modern Economy, Vol. 3 No. 5, 2012, pp. 671-674. doi: 10.4236/me.2012.35086.
References
[1] E. S. Curtis and C. Waller, “A Search-Theoretic Model of Legal and Illegal Currency,” Journal of Monetary Economics, Vol. 45, 2000, pp. 155-184. doi:10.1016/S0304-3932(99)00042-2 [2] R. Dutu, “Strong and Weak Currencies in a Search- Theoretic Model of Money,” Research Paper, 2001. [3] S. Lotz and G. Rocheteau, “On the Launching of a New Currency,” Journal of Money, Credit and Banking, Vol. 34, No. 3, 2002, pp. 563-588. doi:10.1353/mcb.2002.0003 [4] N. Kiyotaki and R. Wright, “A Search-Theoretic Ap- proach to Monetary Economics,” American Economic Review, Vol. 83, No. 1, 1993, pp. 63-77. [5] B. Craig and C. Waller, “Dual Currency Economies as Multiple Payment Systems,” Economic Review, Federal Reserve Bank of Cleveland, Cleveland, 2000.
[1] E. S. Curtis and C. Waller, “A Search-Theoretic Model of Legal and Illegal Currency,” Journal of Monetary Economics, Vol. 45, 2000, pp. 155-184. doi:10.1016/S0304-3932(99)00042-2 [2] R. Dutu, “Strong and Weak Currencies in a Search- Theoretic Model of Money,” Research Paper, 2001. [3] S. Lotz and G. Rocheteau, “On the Launching of a New Currency,” Journal of Money, Credit and Banking, Vol. 34, No. 3, 2002, pp. 563-588. doi:10.1353/mcb.2002.0003 [4] N. Kiyotaki and R. Wright, “A Search-Theoretic Ap- proach to Monetary Economics,” American Economic Review, Vol. 83, No. 1, 1993, pp. 63-77. [5] B. Craig and C. Waller, “Dual Currency Economies as Multiple Payment Systems,” Economic Review, Federal Reserve Bank of Cleveland, Cleveland, 2000.