Making Money

65 Pages Posted: 18 Mar 2022

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Chase P. Ross

Board of Governors of the Federal Reserve System

Sharon Y. Ross

Office of Financial Research, US Department of the Treasury

Multiple version iconThere are 2 versions of this paper

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

Gorton, Gary B. and Ross, Chase P. and Ross, Sharon, Making Money (January 29, 2022). Available at SSRN: https://ssrn.com/abstract=4021072 or http://dx.doi.org/10.2139/ssrn.4021072

Gary B. Gorton (Contact Author)

Yale School of Management ( email )

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HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

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Yale University - Yale Program on Financial Stability

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Chase P. Ross

Board of Governors of the Federal Reserve System ( email )

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

Sharon Ross

Office of Financial Research, US Department of the Treasury ( email )

717 14th Street, NW
Washington, DC 20220
United States

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