This article argues that fiat money’s only technological role in an economy is to act as societal memory: money allows people to credibly record some aspects of their transactions and make that record accessible to other people. This record-keeping role is demonstrated in the three standard paradigms of fiat money: the overlapping generations, turnpike, and search models. In these models, if a new economy is created by removing the money and replacing it only with a historical record of all transactions, known to everyone in the economy, then the original monetary allocation is still achievable as an equilibrium.
This article is a less technical presentation of the ideas in the author’s study, “Money is Memory,” published in the _Journal of Economic Theory_ (Vol. 81, Iss. 2, August 1998, pp. 232-251). The article appears in the Minneapolis Fed’s Quarterly Review with the permission of Academic Press. https://doi.org/10.1006/jeth.1997.2357