Imperfect monitoring is necessary for essentiality of money

  • Hiroki Fukai
Research Article


Fiat money, an intrinsically useless object, is said to be essential if some good allocations are achieved with it but not without it. In this paper, it is shown that imperfect monitoring is necessary for money to be essential in a large class of economic environments. This provides a guide for the construction of models in which monetary trade achieves good outcomes.


Money Imperfect monitoring Essentiality of money 

JEL Classification

C73 D82 E40 



I am deeply indebted to Neil Wallace for his guidance and encouragement. I would like to thank an anonymous referee, the editor, Kalyan Chatterjee, Tetsuya Hoshino, James Jordan, and Anthony Kwasnica for their helpful comments. Any remaining errors are of course my responsibility.


  1. Araujo, L.: Social norms and money. J. Monetary Econ. 51, 241–256 (2004)CrossRefGoogle Scholar
  2. Araujo, L., Camargo, B.: Limited monitoring and the essentiality of money. J. Math. Econ. 58, 32–37 (2015)CrossRefGoogle Scholar
  3. Awaya, Y., Fukai, H.: A note on ‘money is memory’: a counterexample. Macroecon. Dyn. 21, 545–553 (2017)CrossRefGoogle Scholar
  4. Hahn, F.: On the foundations of monetary theory. In: Parkin, M., Nobay, A.R. (eds.) Essays in Modern Economics. Barnes and Noble, New York (1973). (Chapter 13)Google Scholar
  5. Kocherlakota, N.: Money is memory. J. Econ. Theory 81, 232–251 (1998)CrossRefGoogle Scholar
  6. Kocherlakota, N., Wallace, N.: Incomplete record-keeping and optimal payment arrangements. J. Econ. Theory 81, 272–289 (1998)CrossRefGoogle Scholar
  7. Ostroy, J.: The informational efficiency of monetary exchange. Am. Econ. Rev. 63, 597–610 (1973)Google Scholar
  8. Townsend, R.M.: Models of money with spatially separated agents. In: Kareken, J., Wallace, N. (eds.) Models of Monetary Economies, pp. 265–303. Federal Reserve Bank of Minneapolis, Minneapolis (1980)Google Scholar
  9. Townsend, R.M.: Currency and credit in a private information economy. J. Political Econ. 97, 1323–1344 (1989)CrossRefGoogle Scholar
  10. Trejos, A., Wright, R.: Search, bargaining, money and prices. J. Political Econ. 103, 118–141 (1995)CrossRefGoogle Scholar
  11. Wallace, N.: The mechanism-design approach to monetary theory. In: Friedman, B., Woodford, M. (eds.) Handbook of Monetary Economics, 2nd edn, pp. 3–23. Elsevier, Amsterdam (2011)Google Scholar

Copyright information

© Society for the Advancement of Economic Theory 2018

Authors and Affiliations

  1. 1.Kyushu UniversityFukuoka-shiJapan

Personalised recommendations