Imperfect Monitoring and the Discounting of Inside Money

This article evaluates the efficiency of a requirement that private issuers redeem inside money on demand at par in a random-matching model of money where the issuers of inside money are imperfectly monitored. I find that for sufficiently imperfect monitoring, a par redemption requirement leads to lower social welfare than if private money were redeemed at a discount. A central message of the article is that if inside money and outside money are not perfect substitutes, a par redemption requirement may not be socially optimal because such a requirement effectively binds them to circulate as if they are

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Year of publication:	2008
Authors:	Mills, Jr., David C.
Publisher:	[S.l.] : SSRN
Subject:	Geldtheorie \| Monetary theory \| Currency-Banking-Kontroverse \| Currency-Banking controversy \| Elektronisches Zahlungsmittel \| Electronic payment \| Bankenregulierung \| Bank regulation