Coin sizes and payments in commodity money systems

Angela Redish and Warren Weber

No 658, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: Commodity money standards in medieval and early modern Europe were characterized by recurring complaints of small change shortages and by numerous debasements of the coinage. To confront these facts, we build a random matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist in the sense that changes in the size of the small coin affect ex ante welfare. Further, the optimal ratio of coin sizes is shown to depend upon the trading opportunities in a country and a country's wealth. Thus, coinage debasements can be interpreted as optimal responses to changes in fundamentals. Further, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare-improving.

Keywords: Coinage (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: COIN SIZES AND PAYMENTS IN COMMODITY MONEY SYSTEMS (2011)
Working Paper: Coin sizes and payments in commodity money systems (2008)
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