Real effects of supplying safe private money

Chenzi Xu and He Yang

Journal of Financial Economics, 2024, vol. 157, issue C

Abstract: Privately issued money often bears default risk, which creates transaction frictions when used as a medium of exchange. The late 19th century US provides a unique context to evaluate the real effects of supplying a new type of money that is safe from default. We measure the local change in “monetary” transaction frictions with a market access approach derived from general equilibrium trade theory. Consistent with theories hypothesizing that lowering transaction frictions benefits the traded and inputs-intensive sectors, we find an increase in traded goods production, in the share of manufacturing output and employment, and in innovation.

Keywords: Private money; Bank notes; Market access; Safe assets; Payments; Currency (search for similar items in EconPapers)
JEL-codes: E42 E51 N11 N21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:157:y:2024:i:c:s0304405x24000916

DOI: 10.1016/j.jfineco.2024.103868

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