A Model Of Indivisible Commodity Money With Minting And Melting

Monetary economists frequently imagine commodity money systems to be smoothly operating regimes where the fixed supply (or costs to produce) of the commodity provide a nominal anchor for the economy. However, while the commodity could anchor the value of the unit of account, commodity money systems had more difficulty in performing the medium of exchange function of money. Jevons famously pointed out that to provide a medium of exchange a commodity must be durable, portable and divisible, and for much of the last millennium gold and silver were adopted as monetary commodities because they had such qualities. Identifiability (for example, of the purity of the metal in a coin) and uniformity (permitting payments to be made by tale rather than by weight) were further desirable characteristics of money.