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 the banking sector, and no public knowledge of the trading histories of the complement of that subset, called the nonbank sector. Each person, whether a banker or a nonbanker, 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 note redemption (destruction) by members of the banking sector.Journal of Economic LiteratureClassification Numbers: E40, E42.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics