Real Effects of Supplying Safe Private Money

61 Pages Posted: 23 May 2022 Last revised: 19 Feb 2023

See all articles by Chenzi Xu

Chenzi Xu

Stanford University; Stanford Graduate School of Business

He Yang

Harvard University

Date Written: May 2022


Privately issued money often bears devaluation risk that create monetary transaction frictions. We evaluate the real effects of supplying a new type of safe money in the historical context of the US in 1863. We instrument for the change in monetary frictions locally using regulatory capital requirements and measure the degree safe money access with a market access approach derived from general equilibrium trade theory. Lowering monetary transaction costs increased traded goods production and spurred structural transformation with more manufacturing output, employment, and urban population. The growth in manufacturing was driven by employment and inputs rather than capital investment.

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Suggested Citation

Xu, Chenzi and Yang, He, Real Effects of Supplying Safe Private Money (May 2022). NBER Working Paper No. w30060, Available at SSRN: or

Chenzi Xu (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, 94305
United States

He Yang

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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