Making Money
65 Pages Posted: 18 Mar 2022
There are 2 versions of this paper
Making Money
Making Money
Date Written: January 29, 2022
Abstract
It is difficult for private agents to produce money that circulates at par with no questions asked. We study two cases of privately-produced money: pre-Civil War U.S. private banknotes and modern stablecoins. Private monies are introduced when there are no better alternatives, but they initially carry an inconvenience yield. Over time, these monies may become more money-like, but they do not always achieve a positive convenience yield. Technology advances and reputation formation pushed private banknotes toward a positive convenience yield. We show that the same forces are at work for stablecoins.
Keywords: money, convenience yield, stablecoins, privately-produced banknotes, cryptocurrencies
JEL Classification: E40, E51, G12, N21
Suggested Citation: Suggested Citation