Economic Quarterly

2002

 

Summer 2002

Private Money and Counterfeiting

Stephen D. Williamson

The liabilities of private financial institutions (private money) have circulated historically. Current interest in private money has been spurred by advances in information technology that permit new types of payments arrangements. The author uses a search model of money to evaluate some of the benefits and costs of monetary systems with private money. Private money promotes productive financial intermediation, but it also may encourage counterfeiting. Counterfeiting, if achievable at a sufficiently low cost, may necessitate prohibition of private money in order to support monetary exchange.



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