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A model of commodity money, with applications to Gresham's Law and the debasement puzzle Author info | Abstract | Publisher info | Download info | Related research | Statistics Francois R. Velde
Warren E. Weber
Randall Wright
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We develop a model of commodity money and use it to analyze the following two questions motivated by issues in monetary history: What are the conditions under which Gresham's Law holds? And, what are the mechanics of a debasement (lowering the metallic content of coins)? The model contains light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. Following a debasement, the quantity of reminting depends on the incentives oÃered by the sovereign. Equilibria exist with positive seigniorage and a mixture of old and new coins in circulation.
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Date of creation: 1997Date of revision:
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Keywords: Money ; Money theory ; Gresham's law ; Other versions of this item:
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