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  • 7p88cg63m?file=thumbnail
    Creator: Wallace, Neil and de O. Cavalcanti, Ricardo
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 581
    Abstract:

    A random-matching model (of money) is formulated in which there is complete public knowledge of the trading histories of a subset of the population, called banks, and no public knowledge of the trading histories of the complement of that subset, called nonbanks. Each person, whether a banker or a non banker, is assumed to have the technological capability to create indivisible, distinct and durable objects called notes. If outside money is indivisible and sufficiently scarce, then an optimal mechanism is shown to have note issue and destruction (redemption) by banks.