Essential Interest-Bearing Money

David Andolfatto ()

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: In this paper, I provide a rationale for why money should earn interest; or, what amounts to the same thing, why risk-free claims to non-interestbearing money should trade at discount. I argue that interest-bearing money is essential when individual money balances are private information. The analysis also suggests one reason for why it is sufficient (as well as necessary) for interest to be paid only on large money balances; or equivalently, why bonds need only be issued in large denominations.

New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2007-09
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Related works:
Working Paper: Essential interest-bearing money (2009)
Working Paper: Essential Interest-Bearing Money (2007)
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