Counterfeiting as Private Money in Mechanism Design.” Working paper, Federal Reserve Bank of

We describe counterfeiting activity as the issuance of private money, one which is di ¢ cult to monitor. Our approach, which amends the basic random-matching model of money in mechanism design, allows a tractable welfare analysis of currency competition. We show that it is not e ¢ cient to eliminate counterfeiting activity completely. We do not appeal to lottery devices, and we argue that this is consistent with imperfect monitoring.