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Money is an experience good: competition and trust in the private provision of money
Juan Pablo Nicolini
E40 - General
E50 - General
E58 - Central Banks and Their Policies
E60 - General
We study the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved.The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good.