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Secondary currencies and high inflation. Implications for monetary theory and policy

By P. Auerbach and G. Davison

Abstract

Existing economic models treat secondary currencies as damaging during inflationary period. Such an approach emerges from the perspective of a ''normal'' economy with a single, relatively stable currency. During periods of high inflation, however, this perspective is deceptive, with the widespread emergence of commodity ''monies'' as substitutes for the primary currency. In the economic dislocation associated with high inflation, the use of secondary currencies associated with high inflation, the use of secondary currencies facilitates the preservation of real economic activity. Furthermore, governmental acquiescence to the public''s use of a secondary currencies adds to the credibility of official promises to defend the value of the primary currency

Topics: HG Finance
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1992
OAI identifier: oai:eprints.lse.ac.uk:21065
Provided by: LSE Research Online
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