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Real effects of supplying safe private money

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  • Xu, Chenzi
  • Yang, He

Abstract

Privately issued money often bears default risk, which creates transaction frictions when used as a medium of exchange. The late 19th century US provides a unique context to evaluate the real effects of supplying a new type of money that is safe from default. We measure the local change in “monetary” transaction frictions with a market access approach derived from general equilibrium trade theory. Consistent with theories hypothesizing that lowering transaction frictions benefits the traded and inputs-intensive sectors, we find an increase in traded goods production, in the share of manufacturing output and employment, and in innovation.

Suggested Citation

  • Xu, Chenzi & Yang, He, 2024. "Real effects of supplying safe private money," Journal of Financial Economics, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:jfinec:v:157:y:2024:i:c:s0304405x24000916
    DOI: 10.1016/j.jfineco.2024.103868
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    More about this item

    Keywords

    Private money; Bank notes; Market access; Safe assets; Payments; Currency;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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