Democratic Currency Issuance

Abstract

We explore democratic currency issuance with flexible majority rules. With flexible majority rules, the vote-share needed to approve a particular currency issuance growth is increasing with this growth rate. By choosing suitable flexible majority rules, socially optimal growth rates can be achieved in simple settings. By adding a communication stage, in which agents can reveal their preferences for currency growth, the voting process
only needs three rounds. With fewer rounds, agents can manipulate the voting outcome. Finally, we show that optimal money growth rates are realized if agents entering financial contracts anticipate ensuing inflation rates determined by these flexible majority rules.

Keywords: digital currency, central bank, voting, majority rule, flexible majority rules

JEL Classification: D72, E31, E42, E52, E58