Liquidity Preference and Interest-Bearing Money: The Ottoman Empire, 1840-1851

18 Pages Posted: 11 Jan 2013

See all articles by Richard C. K. Burdekin

Richard C. K. Burdekin

Claremont McKenna College - Robert Day School of Economics and Finance

Meric Keskinel

West Los Angeles College

Date Written: December 20, 2012

Abstract

Legal restrictions theory suggests that interest-bearing money would dominate if there were no legal impediments precluding competition with non-interest-bearing currency. There are very few historical examples with meaningful issues of interest-bearing currency, however, and these tend to occur during extreme circumstances like civil war. The Ottoman Empire in the 1840s offers an unusual opportunity to observe large-scale issuance of interest-bearing notes under stable conditions over an extended period of time. This experience features government-issued interest-bearing money circulating in the absence of legal restrictions – with the data pointing to a liquidity preference favoring the smaller denominations most useful in daily transactions.

Keywords: Interest-bearing currency, legal restrictions, Ottoman Empire, Istanbul

JEL Classification: E42, N21

Suggested Citation

Burdekin, Richard C. K. and Keskinel, Meric, Liquidity Preference and Interest-Bearing Money: The Ottoman Empire, 1840-1851 (December 20, 2012). Claremont McKenna College Robert Day School of Economics and Finance Research Paper. Available at SSRN: https://ssrn.com/abstract=2199073 or http://dx.doi.org/10.2139/ssrn.2199073

Richard C. K. Burdekin (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

Meric Keskinel

West Los Angeles College ( email )

9000 Overland Avenue
Culver City, CA 90230
United States

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