The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Fiat Money

  • Neil Wallace
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_454

Abstract

Fiat money is an intrinsically useless object that serves as a medium of exchange. One challenge is to construct models that depict the ancient notion that a medium of exchange is beneficial. Another is to construct models in which the medium of exchange has a low rate of return. This article reviews how those challenges have been approached and argues that progress has been achieved by taking seriously some old ideas about the circumstances in which money is helpful and about the desirable properties of money: money is helpful when there are absence-of-double-coincidence difficulties that cannot be easily overcome with credit; and a good money has desirable physical properties – recognizability, portability and divisibility.

Keywords

Absence of doublecoincidence Arrow–Debreu model Asymmetric information Cash-in-advance models Central banking Commitment Commodity money Cournot quantity game Credit Fiat money Friedman rule Imperfect monitoring Incentive feasibility Incomplete markets Infinite horizons Inside and outside money Large-family models Medium of exchange Money Nash equilibrium Open-market operations Perfect monitoring Pooling equilibria Production functions Quantity theory of money Risk sharing Shapley–Shubik trading posts Walras’s Law 

JEL Classifications

N0 
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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Neil Wallace
    • 1
  1. 1.