Gold, Fiat and Credit: An Elementary Discussion of Commodity Money, Fiat Money and Credit. Part II
In this paper we present a series of models, all within the context of a simple two-good economy, which bring out the distinctions between the diﬀerent types of money and ﬁnancial institutions. The models emphasize the physical properties of the economic goods, moneys, and trading systems. In Part 1 of the paper, we covered models in which the money is a consumable storable; here in Part 2 we consider economies using durable money, ﬁat money, or credit. Under this framework we are able to successfully contrast the role of private money lenders, banks, bilateral credit systems, and credit clearinghouses. We are also able to model the importance of the bankruptcy or default penalty in supporting the use of ﬁat.
Quint, Thomas and Shubik, Martin, "Gold, Fiat and Credit: An Elementary Discussion of Commodity Money, Fiat Money and Credit. Part II" (2004). Cowles Foundation Discussion Papers. 1736.