A model of commodity money, with applications to Gresham's Law and the debasement puzzle

Francois Velde (), Warren Weber and Randall Wright

No WP-97-12, Working Paper Series, Macroeconomic Issues from Federal Reserve Bank of Chicago

Abstract: We develop a model of commodity money and use it to analyze the following two questions motivated by issues in monetary history: What are the conditions under which Gresham's Law holds? And, what are the mechanics of a debasement (lowering the metallic content of coins)? The model contains light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. Following a debasement, the quantity of reminting depends on the incentives oered by the sovereign. Equilibria exist with positive seigniorage and a mixture of old and new coins in circulation.

Keywords: Money; Money theory; Gresham's law (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle (1999)
Working Paper: A model of commodity money, with applications to Gresham's law and the debasement puzzle (1997)
Working Paper: A Model of Commodity Money, With Application to Gresham's Law and the Debasement Puzzle
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