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A model of commodity money with minting and melting

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  • Angela Redish
  • Warren E. Weber

Abstract

We construct a random matching model of a monetary economy with commodity money in the form of potentially different types of silver coins that are distinguishable by the quantity of metal they contain. The quantity of silver in the economy is assumed to be fixed, but agents can mint and melt coins. Coins yield no utility, but can be traded. Uncoined silver yields direct utility to the holder. We find that optimal coin size increases with the probability of trade and with the stock of silver. We use these predictions of our model to analyze the coinage decisions of the monetary authorities in medieval Venice and England. Our model provides theoretical support for the view that decisions about coin sizes and types during the medieval period reflected a desire to improve the economic welfare of the general population, not just the desire for seigniorage revenue.

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  • Angela Redish & Warren E. Weber, 2011. "A model of commodity money with minting and melting," Staff Report 460, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:460
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    References listed on IDEAS

    as
    1. Carlo M. Cipolla, 1963. "Currency Depreciation in Medieval Europe," Economic History Review, Economic History Society, vol. 15(3), pages 413-422, April.
    2. Francois R. Velde & Warren E. Weber, 2000. "A Model of Bimetallism," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1210-1234, December.
    3. Manjong Lee & Neil Wallace & Tao Zhu, 2005. "Modeling Denomination Structures," Econometrica, Econometric Society, vol. 73(3), pages 949-960, May.
    4. Redish, Angela & Weber, Warren E., 2011. "Coin Sizes And Payments In Commodity Money Systems," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 62-82, April.
    5. Gregory Clark, 2007. "The long march of history: Farm wages, population, and economic growth, England 1209–18691," Economic History Review, Economic History Society, vol. 60(1), pages 97-135, February.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Was medieval seigniorage welfare improving?
      by Economic Logician in Economic Logic on 2011-08-26 19:18:00

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    Cited by:

    1. Jin, Gu & Zhu, Tao, 2019. "Debasements and Small Coins: An Untold Story of Commodity Money," MPRA Paper 93057, University Library of Munich, Germany.
    2. Chen, Heng & Huynh, Kim P. & Shy, Oz, 2019. "Cash versus card: Payment discontinuities and the burden of holding coins," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 192-201.
    3. Bignon, Vincent & Dutu, Richard, 2017. "Coin Assaying And Commodity Money," Macroeconomic Dynamics, Cambridge University Press, vol. 21(6), pages 1305-1335, September.
    4. Allan Hernandez-Chanto, 2020. "The extrinsic value of low-denomination money holdings," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 263-280, October.

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