Competition of currencies an alternative to legal tender

Abstract

The aim of this paper is to question the scenario with legal tender law by an analysis of potential competition of alternative currencies. To accomplish such a goal, this study offers an original version of the dynamic macroeconomic model based on the money in the utility function. This model compares the current monetary conditions with the potential situation permitting more currencies circulating alongside. The main assumption about individuals’ preferences over stable currencies underlines the whole paper with emphasis on the mathematical model. The outcome of the model reveals lower inflation rate in scenario with competition among currencies in comparison to the present scenario. This result by itself seems to favour the idea of an exclusion of legal tender clause and allowance of free currency competition. The final simulation of the model, using statistical software, brings to this so far “unambiguous” view scepticism due to possible difficulties during the discovery process.