On the Equivalence of Private and Public Money

31 Pages Posted: 11 Jun 2019

See all articles by Markus K. Brunnermeier

Markus K. Brunnermeier

Princeton University - Department of Economics

Dirk Niepelt

University of Bern - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: June 2019

Abstract

We develop a generic model of money and liquidity that identites sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan," cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.

Keywords: CBDC, Chicago Plan, equivalence, Inside money, monetary system, money creation, outside money, sovereign money

Suggested Citation

Brunnermeier, Markus Konrad and Niepelt, Dirk, On the Equivalence of Private and Public Money (June 2019). CEPR Discussion Paper No. DP13778, Available at SSRN: https://ssrn.com/abstract=3401865

Markus Konrad Brunnermeier (Contact Author)

Princeton University - Department of Economics ( email )

Bendheim Center for Finance
Princeton, NJ
United States
609-258-4050 (Phone)
609-258-0771 (Fax)

HOME PAGE: http://www.princeton.edu/¡­markus

Dirk Niepelt

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

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