More on Money Mining and Price Dynamics: Competing and Divisible Currencies
35 Pages Posted: 14 Jul 2020
Date Written: March 19, 2020
We develop a random-matching model to study the price dynamics of divisible monies produced privately by using a time-consuming mining technology. There exists a unique equilibrium where the value of money increases until it reaches a steady state. There is also a continuum of perfect-foresight equilibria indexed by the starting value of the currency where the price of money inflates and bursts over time. Early on private money is held for a speculative motive and it acquires a transactional role when money supply becomes sufficiently abundant. We study gold- and crypto-mining technologies, fiat and commodity monies, single and competing currencies.
Keywords: Money, Search, Private and Competing Monies, Mining, Divisible
JEL Classification: E40, E50
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