The big problem of small change Sargent, Thomas J; Sargent, Thomas J; Velde, François R
2001., 20140424, 2014, 2002, 2002-01-01, Volume:
12
eBook
The Big Problem of Small Changeoffers the first credible and analytically sound explanation of how a problem that dogged monetary authorities for hundreds of years was finally solved. Two leading ...economists, Thomas Sargent and François Velde, examine the evolution of Western European economies through the lens of one of the classic problems of monetary history--the recurring scarcity and depreciation of small change. Through penetrating and clearly worded analysis, they tell the story of how monetary technologies, doctrines, and practices evolved from 1300 to 1850; of how the "standard formula" was devised to address an age-old dilemma without causing inflation.
One big problem had long plagued commodity money (that is, money literally worth its weight in gold): governments were hard-pressed to provide a steady supply of small change because of its high costs of production. The ensuing shortages hampered trade and, paradoxically, resulted in inflation and depreciation of small change. After centuries of technological progress that limited counterfeiting, in the nineteenth century governments replaced the small change in use until then with fiat money (money not literally equal to the value claimed for it)--ensuring a secure flow of small change. But this was not all. By solving this problem, suggest Sargent and Velde, modern European states laid the intellectual and practical basis for the diverse forms of money that make the world go round today.
This keenly argued, richly imaginative, and attractively illustrated study presents a comprehensive history and theory of small change. The authors skillfully convey the intuition that underlies their rigorous analysis. All those intrigued by monetary history will recognize this book for the standard that it is.
An accident of history, the international dollar standard has greatly facilitated multilateral trade and exchange since 1945. But beginning in 1971, erratic U.S. monetary and exchange rate policies ...have upset the world’s macro economy so as to make foreigners unhappy. Paradoxically, the asymmetrical nature of the dollar standard also makes Americans unhappy because they cannot control their own exchange rate. Although nobody loves the dollar standard, it is a remarkably robust institution that is too valuable to lose and too difficult to replace. Today, rehabilitating the dollar standard requires that American monetary and financial policies be “internationalized”: the Federal Reserve should aim for greater exchange rate stability by adjusting interest rates to prevent runs for or against the dollar, while the U.S. Treasury aims fiscal policy to balance exports and imports. 21China, now the world’s largest exporter and creditor country, has a critical role to play in sustaining the dollar standard. Because the renminbi is not much accepted internationally, China’s foreign trade is mainly invoiced in dollars, and interbank payments are cleared in dollars. So helping to stabilize the world dollar standard is in China’s, as well as America’s (and the world’s), own best interests. But how the now dominant “G-2” rationalize their mutual saving imbalances and debtor-creditor relationship, with China holding trillions of dollars of official exchange reserves, is the key question for sustainability.
How were the Greeks of the sixth century BC able to invent philosophy and tragedy? In this book Richard Seaford argues that a large part of the answer can be found in another momentous development, ...the invention and rapid spread of coinage which produced the first ever thoroughly monetised society. By transforming social relations, monetisation contributed to the ideas of the universe as an impersonal system (presocratic philosophy) and of the individual alienated from his own kin and from the gods (in tragedy). Seaford argues that an important precondition for this monetisation was the Greek practice of animal sacrifice, as represented in Homeric Epic, which describes a premonetary world on the point of producing money. This book combines social history, economic anthropology, numismatics and the close reading of literary, inscriptional, and philosophical texts. Questioning the origins and shaping force of Greek philosophy, this is a major book with wide appeal.
Looking from the 11th century to the 20th century, Kuroda explores how money was used and how currencies evolved in transactions within local communities and in broader trade networks. The discussion ...covers Asia, Europe and Africa and highlights an impressive global interconnectedness in the pre-modern era as well as the modern age.
Drawing on a remarkable range of primary and secondary sources, Kuroda reveals that cash transactions were not confined to dealings between people occupying different roles in the division of labour (for example shopkeepers and farmers), rather that peasants were in fact great users of cash, even in transactions between themselves. The book presents a new categorization framework for aligning exchange transactions with money usage choices.
This fascinating monograph will be of great interest to advanced students and researchers of economic history, financial history, global history and monetary studies.
Investigating the correlation between digital financial services, mobile money usage, and money velocity in Ghana, the study analysed time series data spanning from 1992 to 2022. A composite index ...was constructed by principal component analysis using data extracted from the world development indicators, with the components mobile money usage, digital financial services, and velocity of money. The estimation utilised an impulse response function and vector error correction model; the results indicated that mobile money, digital financial services, and money velocity are related in both the short and long term. Furthermore, the application of a standard deviation innovation to the velocity of money produced increases of both positive and negative magnitude for all the variables. This suggests that mobile money, digital banking services, and velocity of money in Ghana are interdependent in an asymmetric manner. In order to facilitate an increase in the velocity of money, the research concluded that policymakers should guarantee that a greater proportion of the population has access to mobile money and digital banking services. In addition to promoting mobile money, online banking services, and digital payment methods on purpose, the government should reduce reliance on physical currency and expedite the circulation of money. It is recommended that future longitudinal studies involving African nations employ diverse estimation techniques.
This paper uses a highly disaggregated demand system to estimate the degree of substitutability among monetary assets and to address the issue of optimal monetary aggregation in the United States. We ...address the problems of dimensionality and nonlinearity, estimating a very detailed monetary asset demand system encompassing the full range of assets based on the locally flexible normalized quadratic expenditure function. We treat the concavity property as a maintained hypothesis and provide evidence consistent with neoclassical microeconomic theory. Statistical tests reject the appropriateness of the aggregation assumptions for all the money measures published by the Federal Reserve as well as for a large number of groupings suggested by earlier studies. This supports and reinforces Barnett's (2016) assertion that we should employ the broadest M4 monetary aggregate published by the Center for Financial Stability.
This study examines the role of information sharing in modulating the effect of financial access on income inequality in 48 African countries for the period 2004-2014. Information sharing is proxied ...with private credit bureaus and public credit registries. All dynamics of financial development are taken into account, namely: depth (money supply and liquid liabilities), efficiency (at banking and financial system levels), activity (from banking and financial system perspective) and size. The empirical exercise is based on interactive Generalised Method of Moments. It can be established from the findings that: first, a threshold of 18.072 percentage coverage of public credit registries is needed to counteract the unconditional positive effect of banking system efficiency. Secondly, on the role of private credit bureaus in financial depth, both the unconditional and the conditional effects are negative, implying a negative synergy. Overall, the findings show that, contingent on the type of financial development dynamic, credit registries broadly play their theoretical role of decreasing financing constraints in order to ultimately reduce inequality.
Despite recent clarifications by central banks that it is indeed commercial banks that are the main creators of the money supply, money creation processes remain as confusing and opaque as ever to ...many. This article develops a simplified macro-visual diagram of today's money system based on the increasingly accepted "credit theory" of money creation. It aims to explain not only how money is created and which institutions have the authority to create it; it also aims to discuss the implications of this understanding of money creation for wider issues, such as political sovereignty, inequality, and socio-economic development. Ultimately, it aims to provide a pedagogical resource upon which both technical and normative discussions about our current money system among academics, activists, and students can be based.
PDF
