We endogenize circulation of currencies and price formation in a decentralized monetary trading environment with two countries and two currencies. In equilibrium sellers of homogenous goods may post prices in the national or also in the foreign currency, given buyers' unobservable valuations. We...

This thesis includes three essays analyzing the role of fiat money in decentralized trade. Essay 1 develops a model that describes a two-country-two-currency economy, in which prices are endogenized by using the "split-the-surplus" rule. The government generates seignorage revenue by issuing...

We study endogenous currency substitution in a decentralized trade environment. Sellers maximize profits from sales of imperfectly substitutable goods by posting prices in either one of two currencies. A unique symmetric equilibrium exists where goods are priced only in the local currency. This...