COIN ASSAYING AND COMMODITY MONEY

Vincent Bignon and Richard Dutu

Macroeconomic Dynamics, 2017, vol. 21, issue 6, 1305-1335

Abstract: We build a model of search and matching in which agents trade using coins that are imperfectly recognizable, but have access to a coin inspection technology—known as coin assaying—that reveals the intrinsic content of coins for a fee. We consider two sources of imperfect information: counterfeit coins and clipping. With counterfeits, coin assaying reduces the extent of inefficiencies associated with imperfect recognizability of coins (namely lower traded quantities and lower trading frequencies). Yet coin assaying does not necessarily increase welfare, because it unmasks counterfeits that then trade at a discount, reducing total output. With clipping, we show that agents clip for two reasons: in the hope of passing an inferior coin for a superior one, and to reduce the purchasing power of coins that are too valuable. Although coin assaying could remove the first type of clipping, it had no effect on the second.

Date: 2017
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Related works:
Working Paper: Coin Assaying and Commodity Money (2016)
Working Paper: Coin Assaying and Commodity Money (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:21:y:2017:i:06:p:1305-1335_00

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