Economics Seminar Series with Guillaume Rocheteau

Guillaume Rocheteau, Professor, University of California at Irvine is presenting: 

Breaking Up With M:

Cashless Limits Under Limited Commitment

As economies become increasingly cashless, what are the welfare implications of eliminating cash? We study environments where money and credit coexist and the key friction is limited commitment. When credit repayment is enforced by banks at some cost, the welfare effects from removing cash when the economy is near-cashless depend on market power and informational frictions: without frictions, aggregate welfare is unchanged but distributional effects arise; with informational asymmetries, financial exclusion increases and aggregate welfare declines. When credit is sustained through public record keeping, removing cash raises debt limits and aggregate welfare even when banks have no market power.