Private money, settlement, and discounts

We construct a random matching model to study the effects of clearing arrangements for private money on the prices at which private monies trade, the volume of exchange, and welfare. In a model with full information, clearing arrangements eliminate discounts on private monies issued in other locations, the volume of exchange increases, and welfare increases. However, with private information about the quality of non-local monies, clearing arrangements may discourage the circulation of high-quality monies, and there may exist welfare-dominated equilibria with low-quality monies.