Money is Privacy

23 Pages Posted: 5 May 2005  

Charles M. Kahn

University of Illinois, Urbana-Champaign; Feseral Reserve Bank of Saint Louis; Bank of Canada

James McAndrews

Federal Reserve Bank of New York

William Roberds

Federal Reserve Bank of Atlanta

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Abstract

An extensive literature in monetary theory has emphasized the role of money as a record-keeping device. Money assumes this role in situations where using credit would be too costly, and some might argue that this role will diminish as the cost of information and thus the cost of credit-based transactions continues to fall. In this article we investigate another use for money, the provision of privacy. That is, a money purchase does not identify the purchaser, whereas a credit purchase does. In a simple trading economy with moral hazard, we compare the efficiency of money and credit, and find that money may be useful even when information is free.

Suggested Citation

Kahn, Charles M. and McAndrews, James and Roberds, William, Money is Privacy. International Economic Review, Vol. 46, No. 2, pp. 377-399, May 2005. Available at SSRN: https://ssrn.com/abstract=714265

Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
340 Wohlers Hall
Champaign, IL 61820
United States

HOME PAGE: http://kahnfrance.com/cmk/

Feseral Reserve Bank of Saint Louis

411 Locust St
Saint Louis, MO 63011
United States

Bank of Canada

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

James McAndrews

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5063 (Phone)
212-720-8353 (Fax)

William Roberds (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-498-8970 (Phone)
404-498-8956 (Fax)

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