Return on Commodity Money, Small Change Problems, and Fiat Money
- Authors
- Kim, Young Sik; Lee, Manjong
- Issue Date
- Mar-2012
- Publisher
- WILEY-BLACKWELL
- Keywords
- E40; E42; commodity money; fiat money; divisibility; small change problem
- Citation
- JOURNAL OF MONEY CREDIT AND BANKING, v.44, no.2-3, pp.533 - 549
- Indexed
- SSCI
SCOPUS
- Journal Title
- JOURNAL OF MONEY CREDIT AND BANKING
- Volume
- 44
- Number
- 2-3
- Start Page
- 533
- End Page
- 549
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/105424
- DOI
- 10.1111/j.1538-4616.2012.00500.x
- ISSN
- 0022-2879
- Abstract
- We construct a search-theoretic model of commodity money where a penny is an indivisible silver coin that can be either melted into a silver bar yielding a positive return or used as a medium of exchange. In equilibria where the rate of return on silver is sufficiently high, small change problems arise in the form of too-much-trade inefficiency because of a too-high value of a penny and no-trade inefficiency because of a shortage of coins in circulation. In the fiat money system, however, trades are not affected at all by the rate of return on silver and the value of a penny is determined by its medium-of-exchange role without incurring the loss in efficiency due to small change problems.
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Collections - College of Political Science & Economics > Department of Economics > 1. Journal Articles
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