Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197836 
Year of Publication: 
2017
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2017-53
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We investigate competition between two intrinsically worthless currencies as a result of decentralized interactions between human subjects. We design a laboratory experiment based on a simple two-country, two-currency search model to study factors that affect circulation patterns and equilibrium selection. Experimental results indicate foreign currency acceptance rates decrease with relative country size but are not significantly affected by the degree of integration. The laboratory economies tend to converge to a unified currency regime where both currencies circulate at home and abroad, even if other regimes are theoretical possibilities. Introducing government transaction policies biased towards domestic currency significantly reduces the acceptability of foreign currency. These findings suggest government policies can serve as a coordination device when multiple currencies are available.
Subjects: 
Central bank research
Digital currencies
JEL: 
C92
D83
E40
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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