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Journal Article

Is Nonprice Competition in Currency Inefficient?

Lawrence H. White and Donald J. Boudreaux
Journal of Money, Credit and Banking
Vol. 30, No. 2 (May, 1998), pp. 252-260
DOI: 10.2307/2601212
Stable URL: http://www.jstor.org/stable/2601212
Page Count: 9
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Is Nonprice Competition in Currency Inefficient?
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Abstract

Some economists believe that the competitive survival of non-interest-bearing currency-the absence of price competition from markets for stored-value cards, banknotes, and token coins-implies a waste of resources on nonprice competition. We argue to the contrary that market forces drive issuers toward an efficient mix of price and non-price competition. Where economic costs (rather than legal restrictions) rule out the delivery of interest on currency, competition exclusively along nonprice dimensions is consistent with efficiency. We graphically illustrate such a case.

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