The demonetization of gold: transactions and the change in control
type: Item
instance of: scholarly article
title: The demonetization of gold: transactions and the change in control
zbMATH Open document ID: 1403.91249
author: Thomas Quint
author: Martin Shubik
published in: Annals of Finance
publication date: 2015-03-24T00:00:00Z
full work available at URL: d1814.pdf
review text: The authors consider three one-period models of money lending. The first model represents a two-perishable-good economy before gold demonetization: it has gold as money, no central bank, but has individuals who act as money lenders. The second model considers the effects of demonetization of gold by replacing the transaction use of gold with paper money. All holders of gold are given paper money on a one-to-one basis; but in addition, they are allowed to keep their gold. In the third model, gold is demonetized as in the second model; but the paper money is issued to a central bank instead of the individuals, hence the individuals own the central bank. All models have moneylenders and two types of traders as agents. The traders trade in two perishable goods using -- depending on the model -- gold or paper money as money, and aim to maximize the utility \(u(x,y,z)=2\sqrt{xy} + z + \Pi \hat z\) common for all agents, where \(x\) and \(y\) are the amounts consumed of goods 1 and 2, \(z\) is the amount of gold services consumed, and \(\Pi\hat z\) is the salvage value of the gold remaining at the end of the game. In Model 1, the initial endowments of the traders are \((a,0,m)\) and \((0,a,m)\) for type 1 and type 2 from good 1, good 2, and gold; and the moneylenders start with an initial supply \(B\) of golds and no goods. All trade is to be intermediated with gold as money, and the moneylenders do not take deposits. In Model 2 paper money (gold certificate) is issued for each gold owner which is \(100\%\) backed by gold: hence the initial endowments of the traders are extended by paper money of amount \(m\), and the initial endowments of moneylenders are extended by paper money of amount \(B\). All trade is to be intermediated by paper money; gold becomes a tradeable commodity; and the salvage ratio of paper money may differ from \(\Pi\). In addition, traders are not allowed to lend, and moneylenders cannot borrow. Model 3 differs from Model 2 in that the paper money bac…
reviewed by: Tamás Mátrai
Mathematics Subject Classification ID: 91B64
Mathematics Subject Classification ID: 91B54
zbMATH DE Number: 6419180
zbMATH Keywords: demonetization of gold
zbMATH Keywords: strategic market game
zbMATH Keywords: central bank
zbMATH Keywords: fiat money
zbMATH Keywords: gold merchants
zbMATH Keywords: gold strips
Wikidata QID: Q110908756
MaRDI profile type: Publication
OpenAlex ID: W1966626827
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DOI: 10.1007/S10436-013-0247-0
description: scientific article; zbMATH DE number 6419180