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Can Interest-Bearing Money Circulate? A Small-Denomination Arkansan Experiment, 1861-63

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  • RICHARD C. K. BURDEKIN
  • MARC D. WEIDENMIER

Abstract

Legal restrictions theory suggests that dominance of non-interest-bearing currency is possible only because legal impediments prevent financial institutions from offering interest-bearing alternatives. A viable interest-bearing medium must be issued in denominations low enough for day-to-day use, however, and without historical examples of small-denomination interest-bearing issues we cannot properly test whether interest-bearing currency will circulate as legal restrictions theory predicts. Civil War Arkansas offers a rare instance where large quantities of small-denomination interest-bearing money were actually issued, mostly below $5. The results of this Arkansan experiment show that small-denomination interest-bearing issues can indeed function as the primary medium of exchange. Copyright 2008 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2008.00111.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 40 (2008)
Issue (Month): 1 (02)
Pages: 233-241

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Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:1:p:233-241

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Young Sik Kim & Manjong Lee, 2011. "Intermediary Cost and Coexistence Puzzle," Discussion Paper Series 1103, Institute of Economic Research, Korea University.

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