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Safe Assets as Commodity Money

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  • MAYA EDEN
  • BENJAMIN S. KAY

Abstract

This paper presents a model in which safe assets are systemic because they are the medium of exchange in risky assets. It connects the literature from banking and finance on safe assets to the monetary literature on alternative monetary systems involving commodity money, interest bearing money, and private money creation. Because safe assets have intrinsic value, changes in their supply lead to changes in market efficiency. Additionally, because safe assets are costly to produce, there is overproduction of safe assets relative to the social optimum. When the model is calibrated to plausible liquidity premiums the resulting inefficiencies are not large.

Suggested Citation

  • Maya Eden & Benjamin S. Kay, 2019. "Safe Assets as Commodity Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(6), pages 1651-1689, September.
    • Handle: RePEc:wly:jmoncb:v:51:y:2019:i:6:p:1651-1689
    DOI: 10.1111/jmcb.12560
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