Private and public circulating liabilities (Q5947391)

The paper studies the circulation of money in the conditions of different monetary economics. The authors consider two types of economics, where private liabilities circulate, either by themselves or alongside outside money. Pure exchange economy in the author's model consists of an infinite sequence of three-period lived, overlapping generations. Economy with both inside and outside money admits an additional possibility that a stock of outside money coexists alongside private circulating liabilities. The authors provide results on the existence and multiplicity of equilibria and characterize dynamics near steady states. In an equilibrium, three kinds of liabilities are traded: newly-issued one-period, newly-issued two-period and previously-issued two-period ones. As an economical conclusion, a system of purely private currency issue is not going to produce even a constrained-efficient allocation of resources. Constrained efficiency requires lump-sum taxes and transfers; full efficiency requires both inside and outside money. The existence of safe, privately-issued liabilities does not threaten economic efficiency. Mathematically, the requirement of a dynamical equilibrium leads to the system of algebraic equations and inequalities for liabilities and interest rates.