A coordination approach to the essentiality of money

The essentiality of money is commonly justified on effi ciency grounds. In this paper, we propose an alternative view on the essentiality of money. We consider an economy with limited monitoring where agents have to coordinate on the use of two alternative technologies of exchange, money and credit. We show that although credit strictly dominates money from an effi ciency perspective, money is essential for coordination reasons. If agents are patient, the region of parameters where they coordinate in the use of money strictly contains the region of parameters where they coordinate in the use of credit.