Author(s)

Sokchea Lim

Department of Economics, Southern Illinois University Carbondale, Carbondale, USA.

The paper uses a dual-currency search theoretic approach to demonstrate that it is possible to induce the acceptance of a local currency in a dollarized economy. In the model, we assume that a foreign currency is in full circulation and the government policy tool is the convertibility of the local currency to the foreign currency. We show that the economy can achieve equilibria where two monies are in circulation if the government can raise a sufficiently high probability of exchange between the two currencies.

Dual-Currency Search Theoretic Approach; Dollarized Economy

S. Lim, "A Local Currency in a Dollarized Economy," Modern Economy, Vol. 3 No. 5, 2012, pp. 671-674. doi: 10.4236/me.2012.35086.