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Coin sizes and payments in commodity money systems


  • Angela Redish
  • Warren E. Weber


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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  • Angela Redish & Warren E. Weber, 2008. "Coin sizes and payments in commodity money systems," Working Papers 658, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:658

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    References listed on IDEAS

    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. Fran├žois 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. Vincent Bignon & Richard Dutu, 2006. "Moneychangers and Commodity Money," EconomiX Working Papers 2006-9, University of Paris Nanterre, EconomiX.
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    Cited by:

    1. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
    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. repec:cup:macdyn:v:21:y:2017:i:06:p:1305-1335_00 is not listed on IDEAS
    4. Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America ," Working Papers 12-08, University of Delaware, Department of Economics.
    5. Fischer, Andreas M., 2014. "Immigration And Large Banknotes," Macroeconomic Dynamics, Cambridge University Press, vol. 18(04), pages 899-919, June.
    6. Bignon, Vincent & Dutu, Richard, 2017. "Coin Assaying And Commodity Money," Macroeconomic Dynamics, Cambridge University Press, vol. 21(06), pages 1305-1335, September.
    7. Farley Grubb, 2015. "Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1776," NBER Working Papers 21728, National Bureau of Economic Research, Inc.
    8. Farley Grubb, 2015. "Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1779," Working Papers 15-10, University of Delaware, Department of Economics.

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