Abstract
Under what conditions are money and credit jointly essential for trade? We answer this question by applying a mechanism-design approach to a standard monetary search model, augmented with two types of credit technologies. First, payment can be enforced up to some exogenous amount (enforcement-based credit). Second, default on past promises can be partially monitored by future trading partners (monitoring-based credit). We characterize implementable allocations subject to individual rationality and bilateral efficiency of trades. Consistent with prior literature, we find that money and monitoring-based credit cannot be jointly essential. However, we show that money and enforcement-based credit are jointly essential as long as neither payment instrument by itself is sufficient to implement a first-best. Money is memory, but it is not enforcement.
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