On the Benefits of Currency Reform

34 Pages Posted: 2 Oct 2018 Last revised: 21 Feb 2019

See all articles by R. Krishna

R. Krishna

Florida State University

Oksana Leukhina

Federal Reserve Bank of St Louis

Date Written: 2018-05-08

Abstract

Money allows agents to achieve allocations that are not possible without it. How- ever, currency in most economies is a uniform object, and there may be incentive compatible allocations that cannot be implemented with a uniform currency. We show that currency reform, ie, changing the monetary base by replacing one currency with another, is a powerful tool that can enable a planner to achieve his desired allocation. Our monetary mechanism with currency reform is anonymous and features nonlinear pricing of consumption goods and future assets, as observed in practice. Our result suggests that currency reform is rarely seen in practice precisely because it is such a powerful tool and none but the most benevolent planner can be trusted to use it wisely.

Suggested Citation

Krishna, R. and Leukhina, Oksana, On the Benefits of Currency Reform (2018-05-08). FRB St. Louis Working Paper No. 2018-21. Available at SSRN: https://ssrn.com/abstract=3258971 or http://dx.doi.org/doi.org/10.20955/wp.2018.021

R. Krishna (Contact Author)

Florida State University

Oksana Leukhina

Federal Reserve Bank of St Louis ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

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