Gold Coins in a Fiat Currency
University of Warwick - Warwick Business School
London Business School IFA Working Paper No. 350-2002
We investigate the feasibility of minting gold coins with a face value in excess of their bullion value, to circulate as currency alongside paper money. The problem is modelled in a partial equilibrium setting where individuals hold money because they face unpredictable liquidity shocks. Gold coins have a positive expected return. They are less costly to hold than money and are used to meet large, infrequent shocks. An issue of gold coins increases total money demand. Depending on the nature of the liquidity shocks, the seignorage gains to Government from the increase in money holdings may exceed the cost of the gold used in the coins.
Number of Pages in PDF File: 40
JEL Classification: E410, E420, E510working papers series
Date posted: August 6, 2002
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