On the Equivalence of Private and Public Money

31 Pages Posted: 24 Oct 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: 2019

Abstract

When does a swap between private and public money leave the equilibrium allocation and price system unchanged? To answer this question, the paper sets up a generic model of money and liquidity which identifies sources of seignorage rents and liquidity bubbles. We derive sufficient conditions for equivalence and apply them in the context of the "Chicago Plan", cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). Our results imply that CBDC coupled with central bank pass-through funding need not imply a credit crunch nor undermine financial stability.

Keywords: Money Creation, Monetary System, Inside Money, Outside Money, Equivalence, CBDC, Chicago Plan, Sovereign Money

JEL Classification: E400, E500, G100, H600

Suggested Citation

Brunnermeier, Markus Konrad and Niepelt, Dirk, On the Equivalence of Private and Public Money (2019). CESifo Working Paper No. 7741. Available at SSRN: https://ssrn.com/abstract=3424724

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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