Abstract

http://ssrn.com/abstract=1429724
 
 

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The Evolution of Paper Money


Oren Levintal


Interdisciplinary Center (IDC) Herzliyah

Joseph Zeira


Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA

July 4, 2009


Abstract:     
This paper tells the story of how paper money evolved as a result of lending by banks. While lending commodity money requires holding large reserves of commodity money to ensure liquidity, issuing convertible paper money reduces these costs significantly. The paper also examines the possibility of issuing inconvertible notes and shows that while they further reduce the cost of borrowing they also have adverse effects on the stability of the banking system. As a result, governments often intervened, either outlawing the issuance of such notes, or monopolizing them for themselves by issuing fiat money. The paper examines the process of creation of paper money, but also sheds light on more general issues, like the relation between money and financial intermediation.

Number of Pages in PDF File: 33

Keywords: Fiat Money, Paper Money, Banks, Liquidity, Financial Intermediation, Convertibility

JEL Classification: E4, E5, N1, N2

working papers series


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Date posted: July 4, 2009 ; Last revised: July 6, 2009

Suggested Citation

Levintal, Oren and Zeira, Joseph, The Evolution of Paper Money (July 4, 2009). Available at SSRN: http://ssrn.com/abstract=1429724 or http://dx.doi.org/10.2139/ssrn.1429724

Contact Information

Oren Levintal
Interdisciplinary Center (IDC) Herzliyah ( email )
P.O. Box 167
Herzliya, 46150
Israel
Joseph Zeira (Contact Author)
Hebrew University of Jerusalem - Department of Economics ( email )
Mount Scopus
Jerusalem 91905, IL 91905
Israel
+972 2 588 3256 (Phone)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
LUISS Guido Carli, DPTEA ( email )
viale Pola 12
Roma, Roma 00198
Italy
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