Coin sizes and payments in commodity money systems
By: Angela Redish and Warren E. Weber.
Contributors: Weber, Warren E.; Federal Reserve Bank of Minneapolis. Research Dept.
Series: Working paper / Federal Reserve Bank of Minneapolis, Research Dept -- 658
Publisher: Federal Reserve Bank of Minneapolis, Research Dept.
Published: 2008
Place of publication: [Minneapolis, MN]
Language: eng
Format: Electronic resource
Description: 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.
Notes: Title from PDF file (viewed on Oct. 10, 2008).

"March 2008."

Includes bibliographical references.

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