The Evolution of Paper Money

Levintal, Oren and Zeira, Joseph (2009) The Evolution of Paper Money. [Working Paper]. Social Science Electronic Pub. p. 33. SSRN Working Paper Series (Submitted)

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This paper tells the story of how paper money evolved as a result of lending by banks. While lending commodity money requires holding large reserves of commodity money to ensure liquidity, issuing convertible paper money reduces these costs significantly. The paper also examines the possibility of issuing inconvertible notes and shows that while they further reduce the cost of borrowing they also have adverse effects on the stability of the banking system. As a result, governments often intervened, either outlawing the issuance of such notes, or monopolizing them for themselves by issuing fiat money. The paper examines the process of creation of paper money, but also sheds light on more general issues, like the relation between money and financial intermediation.

Item Type: Report / Paper (Working Paper)
Research documents and activity classification: Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions: Department of Business and Management
Additional Information: An other version of the paper is available under subscription in "CEPR Discussion Paper" no. 7362, July 2009.
Uncontrolled Keywords: Fiat Money, Paper Money, Banks, Liquidity, Financial Intermediation, Convertibility.
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Maria Teresa Nisticò
Date Deposited: 22 Dec 2010 15:18
Last Modified: 22 Apr 2015 00:13


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