Money Mining and Price Dynamics

Abstract

We develop a random-matching model to study the price dynamics of monies produced privately according to a time-consuming mining technology. We provide examples of mining technologies for which there exists a unique equilibrium where the value of money increases over time and reaches a steady state. There is also a continuum of perfect-foresight equilibria where the price of money inflates and bursts gradually over time. Initially, money is held for a speculative motive but it acquires a transactional role as it becomes sufficiently abundant. We study fiat, commodity, and crypto monies, and adopt implementation and equilibrium approaches.

Keywords: Money, Search, Private Monies, Mining

JEL Classification: E40, E50