TITLE:
A Local Currency in a Dollarized Economy
AUTHORS:
Sokchea Lim
KEYWORDS:
Dual-Currency Search Theoretic Approach; Dollarized Economy
JOURNAL NAME:
Modern Economy,
Vol.3 No.5,
September
29,
2012
ABSTRACT: 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.