Safe Assets As Commodity Money

31 Pages Posted: 27 Nov 2015 Last revised: 15 Nov 2016

See all articles by Maya Eden

Maya Eden

World Bank - Development Research Group (DECRG)

Benjamin S. Kay

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2016


This paper presents a model in which safe assets are systemic because they are the medium of exchange for risky assets. It connects the literature from banking and finance on safe assets to the monetary literature on alternative monetary systems involving commodity money, interest bearing money, and private money creation. This connection shows that because safe assets have intrinsic value that is unrelated to their use as a medium of exchange, changes in their supply lead to changes in market efficiency. In addition, because safe assets are costly to produce, there is overproduction of safe assets relative to the socially efficient benchmark. Quantitatively, the welfare consequences of these inefficiencies depend on the costs of producing safe assets, which can be inferred from the equilibrium value of the liquidity premium. When the model is calibrated to plausible liquidity premiums the resulting inefficiencies are not large.

Keywords: Private Money Creation; Liquidity; Institutional Money Alternatives

JEL Classification: G12, E42, G11, E41

Suggested Citation

Eden, Maya and Kay, Benjamin, Safe Assets As Commodity Money (October 25, 2016). OFR WP 15-23, Available at SSRN: or

Maya Eden

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
Washington, DC 20433
United States

Benjamin Kay (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://

Do you want regular updates from SSRN on Twitter?

Paper statistics

Abstract Views
PlumX Metrics