Commodity money inflation: theory and evidence from France in 1350–1436

This paper presents a theory of inflation in commodity money and supports it by evidence from inflationary episodes in France during the 14th and 15th centuries. The paper shows that commodity money can be inflated similarly to fiat money through repeated debasements, which act like devaluations. Furthermore, as with fiat money, demand for commodity money falls with inflation. However, at high rates of inflation demand for commodity money becomes insensitive to inflation, since commodity money has intrinsic value in addition to its transactions value. Finally, we show that anticipated stabilization reduces demand for commodity money.     

Synthetic commodity money

The conventional dichotomy of “commodity” and “fiat” base monies overlooks a third possibility that shares some features of each. This third type, which I call “synthetic commodity money,” resembles fiat money in having no nonmonetary value; but it resembles commodity money in being not just contingently but absolutely scarce. I discuss some actual examples of synthetic commodity monies, and then argue that special characteristics of synthetic commodity money are such as might allow such a money, if properly designed, to supply the foundation for a monetary regime that does not require oversight by any monetary authority, yet is able to provide for a high degree of macroeconomic stability.     

The demonetization of gold: transactions and the change in control

Three models of a monetary economy are considered, in order to show the effects of a gold demonetization: the first with a gold money, the second with demonetized gold but no central bank, and the third with demonetized gold, but with a central bank. The distinctions between ownership and control are discussed. Our results show a gain in efficiency (in the case of “enough money”) when a switch is made from a durable commodity money to a fiat money. This is due to players being able to enjoy both the full service value of gold and transactions value of money—something that cannot be done in the original model with gold money. When we further add in the central bank, there is a somewhat further efficiency gain in the case of “not enough money”. We close the paper with a discussion of the usefulness of central banks.     

Price setting, price dispersion, and the value of money: or, the law of two prices

We study models combining search, money, price posting, and preference shocks. We show how these features interact to influence the price level and price dispersion. First, price-posting equilibria exist with valued fiat currency. Second, although both are possible, price dispersion is more common than a single price. Third, we prove that generically there cannot be more than two prices. We provide intuition for this law of two prices, show it also holds in some nonmonetary search models, and discuss variations of the assumptions under which it may not hold.     

Monetary rules and commodity money schemes under uncertainty

The paper sets out a simple monetary model and uses it to compare alternative monetary systems. Money may be either fiat or gold. Both gold supply and velocity are uncertain. Asset demands are derived from expected utility maximization. I demonstrate the basic argument against a commodity money — that it wastes resources, show why the optimal growth rate of money may be zero, and compare the behavior of the economy under constant money stock, constant price level, and constant gold price rules. Expected utility is typically highest under the constant price level rule.     

Does Bitcoin behave as a currency?: A standard monetary model approach

We derive the Bitcoin exchange rate dynamics by solving the exchange rate equation of the standard flexible-price monetary model to investigate any characteristics of Bitcoin like a currency. The dynamics is driven by an asymmetric mean-reverting fundamental shock which can be attributed to a money demand shock. A crash occurs when the exchange rate with a weakened mean-reverting force breaches a lower boundary where a smooth-pasting condition is imposed. The empirical results show the exchange rate dynamics can be calibrated according to the model, in which the mean reversion of the dynamics is positively co-integrated with the Bitcoin transaction volume indicating demand for Bitcoin; and with the risk reversals of the commodity currencies (Australian dollar and Canadian dollar) in currency option markets. The analysis shows that the Bitcoin exchange rate shares some characteristics of commodity currencies with crash risk. This suggests that Bitcoin behaves as a currency between fiat money and a crypto-commodity used for trading and investment purposes.     

Separation of Unit of Account from Medium of Exchange

The separation of a unit of account (UoA) from a medium of exchange (MoE) in the commodity–money system is investigated by considering explicitly a seller's choice of UoA in terms of either an MoE or a unit of metal weight. If the likelihood of debasement of an MoE and its rate are high enough, the price is posted in terms of a unit of metal weight rather than an MoE. Interestingly, this MoE–UoA separated equilibrium yields the flexible nominal price, whereas an MoE–UoA integrated equilibrium yields the sticky one. This implies the nominal price rigidity in the fiat‐money system where MoE and UoA are integrated.     

Has government any role in money?

Recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system. In light of this interest, we review the current validity of four ‘good reasons’ Friedman advanced in 1960 to rationalize government intervention. We conclude that the forces that produced government involvement in the past will persist. Deregulation of financial intermediaries is desirable on grounds of market efficiency, though it is an open question whether government should continue as lender of last resort. We expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard.     

A model of commodity money

Commodity money is modeled as one or two of the capital goods in a one-consumption good and one or two capital-good, overlapping generations model. Among the topics addressed using versions of the model are (i) the nature of the inefficiency of commodity money, (ii) the validity of quantity-theory predictions for commodity money systems, (iii) the circumstances under which one commodity emerges naturally as the commodity money, (iv) the role of inside money (money backed by private debt) in commodity money systems and (v) the circumstances under which a government can choose the commodity to serve as the commodity money.     

Information, learning, and the stability of fiat money

We analyze the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.     

Reserve requirements and optimal seigniorage

This note presents a model of optimizing agents who chose to hold deposits at financial intermediaries, which are required to hold fractional reserves of fiat money. When the stock of fiat money is expanded, the reserve requirement functions as a tax on deposits. The combination of reserve requirements and inflation results in a lower steady-state utility than a direct tax on deposits. The optimal monetary policy when reserves are required is to minimize reserve requirements and inflate without limit the stock of fiat money.     

Equilibrium traits of durable commodity money

A dynamic model of utility-maximizing agents explains why scarce, durable commodities are typically monetary. The model provides quantitative criteria for distinguishing between monetary and non-monetary durables, and is also used to analyze symmetallic equilibria.The model is then extended to analyze commodity-backed paper money. It is demonstrated that the backing generates trust in the paper money in the dynamic-consistency sense. The model predicts regular devaluations as an equilibrium phenomenon, but finds such behavior to be efficient. Finally, the results are integrated to make a technical point about dynamic models of pure fiat money.     

Optimal Monetary Policy in a Model of Money and Credit

We investigate the extent to which monetary policy can enhance the functioning of the private credit system. Specifically, we characterize the optimal return on money in the presence of credit arrangements. There is a dual role for credit: it allows buyers to trade without fiat money and also permits them to borrow against future income. However, not all traders have access to credit. As a result, there is a social role for fiat money because it allows agents to self‐insure against the risk of not being able to use credit in some transactions. We consider a (nonlinear) monetary mechanism that is designed to enhance the credit system. An active monetary policy is sufficient for relaxing credit constraints. Finally, we characterize the optimal monetary policy and show that it necessarily entails a positive inflation rate.     

Anticipated inflation and rates of return in a search-theoretic monetary model

How does anticipated inflation of fiat money affect the real return of a near money—an asset with real value used to mediate trades? This essay studies a search model in which decentralized trade takes place under a fixed bargaining rule. The essay analytically studies the comparative statics of a near money's real return as it varies with inflation. The effects diverge markedly over the parameter space. There exist parameters for which higher inflation lowers the real asset return, as suggested by asset substitution theories. There also exist parameters for which inflation has the opposite effect.     

A fundamental theory of exchange rates and direct currency trades

In this paper we construct a two-country search model to determine the nominal exchange rate between two fiat monies. Our model allows agents to use any currency to trade for goods in all countries. However, search frictions restrict agents’ opportunities for instantaneous arbitrage, and hence make the nominal exchange rate determinate. The nominal exchange rate depends on the two countries’ economic fundamentals, including the stocks and growth rates of the two monies. Direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets. There are persistent violations of the law of one price and purchasing power parity in equilibrium, despite the fact that prices are perfectly flexible and all goods are tradeable between countries. Nominal and real exchange rates can move together in the steady state in response to money growth shocks.     

Existence and uniqueness of equilibrium in nonoptimal unbounded infinite horizon economies

In applied work in macroeconomics and finance, nonoptimal infinite horizon economies are often studied in which the state-space is unbounded. Important examples of such economies are single-sector growth models with production externalities, valued fiat money, monopolistic competition, and/or distortionary government taxation. Although sufficient conditions for existence and uniqueness of Markovian equilibrium are well known for the compact state space case, no similar sufficient conditions exist for unbounded growth. This paper provides such a set of sufficient conditions, and presents a computational algorithm that will prove asymptotically consistent when computing Markovian equilibrium.     

Why Inside Money Matters

This note observes that in a simple infinite horizon economy with heterogeneous endowments and a cash-in-advance constraint fiat money can be used to implement a Pareto optimum only with type-specific taxation. By contrast, if credit contracts are enforceable, the same allocation can be reached in equilibrium without type specific policy. We argue that the advantages of inside money and the fact that they depend on the capacity of the economy to enforce the repayment of debt direct us toward the study of the institutional infrastructure underlying self-enforcing inside money equilibria.     

中国货币政策工具选择研究

本文在普勒规则研究的基础上进行适当扩展,对我国货币政策工具选择问题展开研究。通过研究本文发现:第一,货币政策工具的选择,与经济体所承受的冲击主要来自商品需求层面还是货币需求层面、货币需求主要来自商品市场还是货币市场以及总需求相对名义利率水平的弹性系数相关,而与社会福利损失函数中通货膨胀的厌恶系数、商品市场供给层面的诸变量(包括商品市场供给层面的冲击、商品供给曲线的斜率等)无关;第二,当经济体的所受冲击主要来自商品需求层面、市场货币需求主要来自商品市场、且货币政策对总需求的调节作用效果较小时,则货币当局采用数量型货币政策工具更有利于维护公众的社会福利;反之,则价格型货币政策操作更有利于维护公众的社会福利。     

法定货币与电子货币的双币流通

在金融发展的历史上．多次出现两种法定货币在一国或地区同时流通,这种双币流通往往危及国家的货币主权．破坏经济社会的稳定发展。互联网金融体系中的法定货币与电子货币的双币流通。与历史上的双币流通会出现双币互相驱逐以及导致诸多负面影响不同,法定货币与电子货币的双币流通并行不悖且相得益彰．由此带来支付体系的效率为中央银行实施货币政策的流程增速,使之更快地产生政策效力。     

Banks, private money, and government regulation

We study competition between inside and outside money in economies with trading frictions and financial intermediation. Claims on banks circulate if the redemption rate is low. When the quantity of fiat money is scarce, coexistence of inside and outside money dominates equilibria with a unique medium of exchange. If outside money is ample, banks choose to redeem claims in outside money, which increases welfare. Under binding reserve requirements, tightening monetary policy leads to credit rationing. Our results support recent trends toward lower reserve requirements. However, we also identify situations where restrictions on note issue are beneficial.