Money Is An Experience Good: Competition And Trust In The Private Provision Of Money
Source: Banco de Portugal
The author studies the interplay between competition and trust as efficiency-enhancing mechanisms in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a lower bound on efficiency. Stationary inflation must be positive and, therefore, the Friedman rule cannot be achieved. The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good.