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A Hybrid Fiat-Commodity Monetary System

Staff Report 61 | Published August 1, 1980

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A Hybrid Fiat-Commodity Monetary System


In this paper I describe a “monetary” system in which backing is provided for the government’s liabilities by way of contingent resort to taxes. The system has some of the features of a commodity money system with a large seignorage spread between bid and ask prices. It is studied within the context of a one-good, pure exchange model of two-period-lived overlapping generations in which, aside from various uniform boundedness assumptions, considerable diversity is allowed both within and across generations. Two results are established: (i) the existence of at least one perfect foresight competitive equilibrium, and (ii) the Pareto optimality of any such equilibrium.

Published in: _Journal of Economic Theory_ (Vol. 25, No. 3, December 1981, pp. 421-430)