Working Paper: CEPR ID: DP14657
Authors: Francesco Lippi
Abstract: There are several real world examples of local governments that, faced with budget problems, circulate a fiat token in parallel to the official currency. A well known case is the Argentinian “Patacon”, printed by the province of Buenos Aires during the crisis of 2001. We present a simple model to analyze the workings of monetary equilibria where the parallel currency is valued in equilibrium and discuss its consequence for real allocations in terms of an equivalent fiscal policy. We briefly discuss different model specifications and their fit to alternative historic experiences.
Keywords: parallel currency; dual currency; monetary economy; pure currency; scrip; chartalism
JEL Codes: E3; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Issuance of parallel currency (F31) | Real transfer of resources (F16) |
| Issuance of parallel currency (F31) | Economic well-being of different population segments (P46) |
| Monetary injections from issuance of parallel currency (F31) | Fiscal policy equivalent (E62) |
| Government's commitment to accept parallel currency for tax payments (H26) | Demand for the currency (E41) |
| Government's commitment to accept parallel currency for tax payments (H26) | Valuation of the currency in equilibrium (F31) |