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Money: A Market Microstructure Approach


  • This paper has evolved over the years and I have received helpful comments from many people. In particular, I would like to mention Frank Browne, David Cronin, Barbara Dluhosch, and David Laidler. The paper has also benefited from the comments of the editor and two anonymous referees. During the finalization of the paper, the author was supported by the E-Finance Lab Frankfurt am Main.


The new monetary economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs. This finding is supported by empirical evidence from foreign exchange markets.