Commodity money standards in medieval and early modern Europe were characterized by recurring complaints of small change shortages and by numerous debasements of the coinage. To confront these facts, we build a random matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist in the sense that changes in the size of the small coin affect ex ante welfare. Further, the optimal ratio of coin sizes is shown to depend upon the trading opportunities in a country and a country�?Ts wealth. Thus, coinage debasements can be interpreted as optimal responses to changes in fundamentals. Further, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare-improving.
Published in: _Macroeconomic Dynamics_ (Vol. 15, Iss. S1, April 2011, pp. 62-82), https://doi.org/10.1017/S1365100510000593.
Related paper: [Staff Report 416: Coin Sizes and Payments in Commodity Money Systems](https://doi.org/10.21034/sr.416)