Liquidity preference and interest-bearing money: the Ottoman Empire, 1840–1851

Richard Burdekin and Meric Keskinel

Financial History Review, 2013, vol. 20, issue 1, 91-102

Abstract: Legal restrictions theory suggests that interest-bearing money would dominate if there were no legal impediments precluding competition with non-interest-bearing currency. There are very few historical examples with meaningful issues of interest-bearing currency, however, and these tend to occur during extreme circumstances like civil war. The Ottoman Empire in the 1840s offers an unusual opportunity to observe large-scale issuance of interest-bearing notes under stable conditions over an extended period of time. This experience features government-issued interest-bearing money circulating in the absence of legal restrictions – with the data pointing to a liquidity preference favouring the smaller denominations most useful in daily transactions.

Date: 2013
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