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Why people accept intrinsically worthless ﬁat money in exchange for real goods and services has been a longstanding question. There are many competing suﬀicient explanations that may confound each other in practice but can be individually tested in isolation experimentally. In this paper we examine a suﬀicient explanation of the value of ﬁat money through the existence of a debt instrument which allows consumption to be moved earlier in time. We present experimental evidence that the theoretical predictions about the behavior of such economies work reasonably well in a laboratory setting. The import of this ﬁnding for the theory of money is to show that the presence of a societal bank and default laws provide suﬀicient structure to support the use of ﬁat money, although many other institutions such as taxation provide alternatives.
Huber, Juergen; Shubik, Martin; and Sunder, Shyam, "The Value of Fiat Money with an Outside Bank: An Experimental Game" (2008). Cowles Foundation Discussion Papers. 1986.