Munich Personal RePEc Archive

On the Private Provision of Fiat Currency

Berentsen, Aleksander (2005): On the Private Provision of Fiat Currency. Published in: European Economic Review , Vol. 50, No. 7 (7 October 2006): pp. 1683-1698.

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This paper considers whether fiat money can be provided by a revenue-maximizing monopolist in an environment where money is essential. Two questions arise concerning the private supply of money: Is it feasible and is it optimal? Concerning the feasibility question, I show that the revenue-maximizing policy is time-consistent if the trading history of the issuer is public information and if money demanders respond to the revelation of defection by playing autarky. Concerning the optimality question, the model suggests that any private organization of the market for fiat currency is suboptimal.

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