Counterfeiting substitute media - of - exchange : a threat to monetary systems
نویسنده
چکیده
One justification for cash-in-advance equilibria is the assumption that the counterfeiting of money is impossible, while the counterfeiting of higher-return substitute media-ofexchange is costless. It is shown that this justification is not robust to replacing costless by costly and placing the analysis within a signaling-game framework in which the intuitive criterion is invoked. In particular, if the cost of counterfeiting the substitutes is small, then there is no monetary equilibrium. Therefore, the counterfeiting of substitutes can be a threat to monetary systems. This result provides a new rationale for legal restrictions that prohibit trades using higher-return substitute media-of-exchange.
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