A Strategic Market Game of a Finite Economy with a Mutual Bank
We introduce a strategic market game for an exchange economy not having enough commodity money. We show the existence of a non-cooperative equilibrium for any ﬁnite replication economy with a mutual bank, we then show that eﬀicient trade can be achieved in the limiting economy by expanding the money supply through the use of fractional reserves, where the commodity money is demonetized and used for reserves. The means of exchange becomes bank credit backed in part, by “gold.” However, eﬀiciency can not be achieved in general as a non-cooperative equilibrium of a ﬁnite player game or a ﬁnite exchange economy.
Shubik, Martin and Zhao, Jingang, "A Strategic Market Game of a Finite Economy with a Mutual Bank" (1990). Cowles Foundation Discussion Papers. 1204.