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Coin sizes and payments in commodity money systems

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  • Angela Redish
  • Warren E. Weber

Abstract

Commodity 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 Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 658.

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Date of creation: 2008
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Handle: RePEc:fip:fedmwp:658

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Keywords: Coinage;

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  1. 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.
  2. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
  3. Redish,Angela, 2006. "Bimetallism," Cambridge Books, Cambridge University Press, number 9780521028936, April.
  4. Vincent Bignon & Richard Dutu, 2006. "Moneychangers and Commodity Money," EconomiX Working Papers 2006-9, University of Paris West - Nanterre la Défense, EconomiX.
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Cited by:
  1. Stephen D. Williamson & Randall Wright, 2010. "New Monetarist Economics: models," Staff Report 443, Federal Reserve Bank of Minneapolis.
  2. Angela Redish & Warren E. Weber, 2011. "A model of commodity money with minting and melting," Staff Report 460, Federal Reserve Bank of Minneapolis.
  3. Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America," NBER Working Papers 18099, National Bureau of Economic Research, Inc.

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