Coin sizes and payments in commodity money systems
AbstractCommodity money standards in medieval and early modern Europe were characterized by recurring complaints of small change shortages and by numerous debasements of the coinage. To confront these facts, we build a random matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist in the sense that changes in the size of the small coin affect ex ante welfare. Further, the optimal ratio of coin sizes is shown to depend upon the trading opportunities in a country and a country's wealth. Thus, coinage debasements can be interpreted as optimal responses to changes in fundamentals. Further, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare-improving.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 658.
Date of creation: 2008
Date of revision:
Other versions of this item:
- 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.
- Angela Redish & Warren E. Weber, 2008. "Coin sizes and payments in commodity money systems," Staff Report 416, Federal Reserve Bank of Minneapolis.
- NEP-ALL-2008-04-29 (All new papers)
- NEP-CBA-2008-04-29 (Central Banking)
- NEP-DGE-2008-04-29 (Dynamic General Equilibrium)
- NEP-MON-2008-04-29 (Monetary Economics)
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