Working Paper: NBER ID: w29710
Authors: Gary B. Gorton; Chase P. Ross; Sharon Y. Ross
Abstract: It is difficult for private agents to produce money that circulates at par with no questions asked. We study two cases of privately-produced money: pre-Civil War U.S. private banknotes and modern stablecoins. Private monies are introduced when there are no better alternatives, but they initially carry an inconvenience yield. Over time, these monies may become more money-like, but they do not always achieve a positive convenience yield. Technology advances and reputation formation pushed private banknotes toward a positive convenience yield. We show that the same forces are at work for stablecoins.
Keywords: Stablecoins; Private Banknotes; Convenience Yield; Monetary Economics
JEL Codes: E02; E4; E41; E42; E51; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| distance to no-questions-asked (d) (Y40) | convenience yield (D11) |
| technological advancements (O33) | distance to no-questions-asked (d) (Y40) |
| issuer reputation formation (G24) | distance to no-questions-asked (d) (Y40) |
| stablecoins (E42) | convenience yield (D11) |
| distance to no-questions-asked (d) (Y40) | value of money (D46) |