Investigating the Conditions for Multiple Media of Exchange

Denver Casey

Advisor: Lawrence H White, PhD, Department of Economics

Committee Members: Carlos D. Ramirez, Robin Hanson

Buchanan Hall, #D002
October 25, 2023, 02:00 PM to 04:00 PM


Most major modern economies conduct the vast majority of commerce with one type of money, or medium of exchange. Why this is, and under what circumstances could multiple media of exchange coexist in an economy are explored in this work.  

Chapter 1 reviews the literature involving multiple media of exchange. This review covers literature specifically relating to multiple media of exchange as well as the related fields of currency substitution and network effects. After reviewing the relevant literature, the chapter concludes with a short discussion and a working definition of “money”. 

In chapter 2, a modified Kiyotaki & Wright type model is developed to consider the conditions necessary for the acceptance of multiple media of exchange in an economy. The model is extended so that there is a cost of using a medium that can be mitigated and a cost that cannot. A few historical scenarios of the coexistence of multiple media of exchange are analyzed with insights from the model.  

In chapter 3, the extended model is then empirically tested with data from 55 countries from the years 2001-2018, inclusive, across several specifications with differing dependent and independent variables proxying for the variables of interest. The results lend moderate support to the model developed in chapter 2.