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| Author: | Lotz, S. |
| Title: | Introducing a new currency: government policy and prices |
| Journal: | European Economic Review
2004 : OCT, VOL. 48:5, p. 959-982 |
| Index terms: | Currency Money Lotteries Models |
| Language: | eng |
| Abstract: | This article explores the introduction of a new fiat currency within a dual currency divisible goods search model. It is shown that equilibrium existing in a laissez-faire environment can disappear because of the government intervention, e.g. when using price control or legal tender laws. Public measures, e.g. conversion, tax and redistribution policies affect differently to the equilibrium value when the old currency is made illegal. The old currency may continue to circulate, if the government is unable to prevent currency exchange. However, if the legal tender constraint is effective enough, the old currency cannot be more valuable than the new one, and the probability that the old one changes hands in trade, when introducing lotteries, cannot be smaller than one. |
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