Multiple currencies

Multiple currencies: Benefits of Multiple Currencies

Multiple currencies: Costs of Multiple Currencies

Multiple currencies: Need to Weigh the Costs and Benefits

When multiple currencies circulate in a country or region, it is possible to pay for most goods and services there with more than one currency. This entry focuses on government-issued currencies. The entry on currency competition discusses the interaction of government-issued money with privately issued monies.

Historically, it has been common for multiple currencies to circulate in a given area. In medieval Europe, for example, and in the United States before the Civil War, coins from many countries circulated side by side.More recently,multiple currencies have circulated in developing countries, notably in South America and Asia, and in some areas of developed countries. In certain parts of England, for instance, most goods and services can be purchased with euros and pounds sterling.

In developed countries, multiple currencies circulate mainly for convenience, to attract or accommodate the business of merchants or tourists. In developing countries in which multiple currencies circulate today, the purpose may be different. The possibility of using dollars or euros protects people in these countries from the cost of inflation of their domestic currencies and provides a way to discipline their monetary authorities.

See also banking crisis; currency competition; currency substitution and dollarization; discipline; dollar standard; dominant currency; Federal Reserve Board; financial crisis; lender of last resort; reserve currency; seigniorage; time inconsistency problem; vehicle currency

FURTHER READING

• Martin, Antoine. 2006. ‘‘Endogenous Multiple Curren cies.’’ Journal ofMoney, Credit, and Banking 38: 247 64. Formalizes many of the arguments described in this entry and provides a number of references.

ANTOINE MARTIN