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A model of commodity money with minting and melting

  • Angela Redish
  • Warren E. Weber

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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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 460.

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Date of creation: 2011
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Handle: RePEc:fip:fedmsr:460
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  1. Fran├žois R. Velde & Warren E. Weber, 1998. "A model of bimetallism," Working Papers 588, Federal Reserve Bank of Minneapolis.
  2. 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.
  3. Manjong Lee & Neil Wallace & Tao Zhu, 2005. "Modeling Denomination Structures," Econometrica, Econometric Society, vol. 73(3), pages 949-960, 05.
  4. repec:cup:cbooks:9780521570916 is not listed on IDEAS
  5. Gregory Clark, 2007. "The long march of history: Farm wages, population, and economic growth, England 1209-1869 -super-1," Economic History Review, Economic History Society, vol. 60(1), pages 97-135, 02.
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