Can Interest‐Bearing Money Circulate? A Small‐Denomination Arkansan Experiment, 1861–63

Richard Burdekin and Marc D. Weidenmier

Journal of Money, Credit and Banking, 2008, vol. 40, issue 1, 233-241

Abstract: Legal restrictions theory suggests that dominance of non‐interest‐bearing currency is possible only because legal impediments prevent financial institutions from offering interest‐bearing alternatives. A viable interest‐bearing medium must be issued in denominations low enough for day‐to‐day use, however, and without historical examples of small‐denomination interest‐bearing issues we cannot properly test whether interest‐bearing currency will circulate as legal restrictions theory predicts. Civil War Arkansas offers a rare instance where large quantities of small‐denomination interest‐bearing money were actually issued, mostly below $5. The results of this Arkansan experiment show that small‐denomination interest‐bearing issues can indeed function as the primary medium of exchange.

Date: 2008
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https://doi.org/10.1111/j.1538-4616.2008.00111.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:40:y:2008:i:1:p:233-241

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