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Inside and Outside Money as Alternative Media of Exchange

Ricardo De O. Cavalcanti and Neil Wallace
Journal of Money, Credit and Banking
Vol. 31, No. 3, Part 2: The Role of Central Banks in Money and Payments Systems (Aug., 1999), pp. 443-457
DOI: 10.2307/2601062
Stable URL: http://www.jstor.org/stable/2601062
Page Count: 15
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Inside and Outside Money as Alternative Media of Exchange
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Abstract

We study a random-matching model of money in which a subset of people, called bankers, have known histories and the rest, called nonbankers, have unknown histories. Earlier, we showed that if there are no outside assets, then an optimal arrangement has bankers issuing objects, banknotes, that are used in trades involving non-bankers. Here, the same model is used to compare such exclusive use of inside money to the exclusive use of outside money. We show that the set of implementable outcomes using outside money is a strict subset of the set using inside money.

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