Private Electronic Money, Fiat Money and the Payments System

Abstract

This paper provides insight on how a modern system of private electronic money would work and how the necessary network shall function. We present a model with two types of private electronic currencies with one being local, and the other being global. Both of them display transactional advantages and dominate fiat money in rate of return. However, in spite of these different returns, the two electronic currencies and fiat money circulate in equilibrium. We further observe that the local electronic currency can be sold with a premium or with a discount, depending on several factors including the probability of relocation faced by the agents in this economy. The higher the probability of relocation, the higher is this discount, and the lower the share of the local electronic currency in the young creditors’ portfolio.Private Money, Commodity Money, Network, Payments System, Competition