Paper #504

Title:

Fiat money, intrinsic properties and government transaction policy

Author:

Xavier Cuadras

Date:

September 2000

Abstract:

Why do people coordinate on the use of valueless pieces of paper as generally accepted money? A possible answer is that these objects have intrinsic properties that make them better candidates to be used as media of exchange. Another answer stresses the fact that unconvertible fiat money will not easily appear unless there is a centralized institution that favors its use. The main objective of the paper is to analyze these questions. In order to do this, we take a model of commodity money in which fiat money does not play any significant role and modify it to examine under which circumstances fiat money might come to circulate as medium of exchange. Some of the results obtained from the model differ in a rather substantial way from previous related literature.

Keywords:

Fiat money, government policy, search theory

JEL codes:

C73, D83, E00

Area of Research:

Macroeconomics and International Economics

Published in:

Manchester School, 72, 1, (2004), pp. 152-166.
With the title:
Fiat Money in a Search Theoretical Model with Generalistic Consumers

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