۱- Introduction

۲- Model

۳- Competitive money supply

۴- Limited supply

۵- Monetary policy

۶- Automata

۷- Productive capital

۸- Conclusions

References

Abstract

Can competition among privately-issued fiat currencies work? Only sometimes and partially. To show this, we build a model of competition among privately-issued fiat currencies. A purely private arrangement fails to implement an efficient allocation, even though it can deliver price stability under certain technological conditions. Although currency competition creates problems for monetary policy, it is possible to design a policy rule that uniquely implements an efficient allocation.

Introduction

Can competition among privately-issued fiduciary currencies work? The appearance of Bitcoin, Ethereum, Libra, and other cryptocurrencies has triggered a wave of interest in privately-issued monies. A similar interest in the topic has not been seen since the polemics associated with the demise of free banking in the English-speaking world in the middle of the 19th century. Somewhat surprisingly, this interest has not translated, so far, into much research within monetary economics. This situation is unfortunate. Without a theoretical understanding of how currency competition works, we cannot answer a long list of positive and normative questions. Among the positive questions: Will a system of private money deliver price stability? Will one currency drive all others from the market? Or will several of these currencies coexist along the equilibrium path? Do private monies require a commodity backing? Will the market provide the socially optimum amount of money? Can private monies and a government-issued money compete? Can a unit of account be separated from a medium of exchange? Among the normative questions: Should governments prevent the circulation of private monies? Should governments treat private monies as currencies or as any other regular property? Should the private monies be taxed?