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Money, Payments, and Liquidity$
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Ed Nosal and Guillaume Rocheteau

Print publication date: 2011

Print ISBN-13: 9780262016285

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262016285.001.0001

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The Role of Money

The Role of Money

Chapter:
(p.47) 3 The Role of Money
Source:
Money, Payments, and Liquidity
Author(s):

Ed Nosal

Guillaume Rocheteau

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262016285.003.0003

Building on the previous chapter’s presentation of credit arrangements that allow intertemporal gains from trade to be exploited by agents, this chapter studies agents under an environment of distrust. Assuming that buyers and sellers have no trust for one another due to the lack of commitment in repaying their debts, trade by credit may not be incentive feasible. If ever trade were to occur, agents would need a kind of tangible medium of exchange. The chapter demonstrates that money is essential in an environment where agents cannot commit and there is no record-keeping technology. The role of money is the record-keeping technology itself.

Keywords:   credit arrangements, trade by credit, tangible medium of exchange, record-keeping technology, role of money, Kocherlakota, money is memory

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