Counterfeiting activities are pervasive, having a tendency to become more attractive the more valuable a currency becomes. Adoption of monitoring processes that increase detection rates and counterfeiting costs is the usual response, but it is evident that new technologies also become available for the provision of crime itself.
Counterfeiting as Private Money in Mechanism Design
Article first published online: 23 SEP 2011
© 2011 The Ohio State University
Journal of Money, Credit and Banking
Volume 43, Issue Supplement s2, pages 625–636, October 2011
How to Cite
CAVALCANTI, R. and NOSAL, E. (2011), Counterfeiting as Private Money in Mechanism Design. Journal of Money, Credit and Banking, 43: 625–636. doi: 10.1111/j.1538-4616.2011.00456.x
We have benefited from the discussions at the New York Fed Workshop on Payments, the SED Meetings, the SAET Meetings, and the Cleveland Fed Workshop on Money, Banking, Payments, and Finance. We thank two referees and an editor for their comments. Finally, we would like to thank Guillaume Rocheteau and Neil Wallace for the many discussions we have had on the topic of counterfeiting.
- Issue published online: 23 SEP 2011
- Article first published online: 23 SEP 2011
- Received December 8, 2008; and accepted in revised form July 21, 2010.
- private money;
- imperfect monitoring;
- mechanism design
We describe counterfeiting activity as the issuance of private money, one that is difficult to monitor. Our approach, which amends the basic random-matching model of money in mechanism design, allows a tractable welfare analysis of currency competition. We show that it is not efficient to eliminate counterfeiting activity completely. We do not appeal to lottery devices, and we argue that this is consistent with imperfect monitoring.