Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189421 
Year of Publication: 
2007
Series/Report no.: 
Queen's Economics Department Working Paper No. 1145
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
This paper studies bank runs in a model with coexistence of fiat money and private money. When fiat money is the only medium of exchange, there exist a bank run equilibrium and an equilibrium that achieves the optimal risk sharing. In contrast, when private money is also a medium of exchange, there exists a unique equilibrium where no one demands early withdrawals of fiat money and agents in need of liquidity only use private money to finance consumption. The unique equilibrium achieves the first-best outcome and eliminates bank runs without having resort to any government intervention.
Subjects: 
private money
fiat money
bank runs
JEL: 
E4
G2
Document Type: 
Working Paper

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