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The Economics of Common Currencies (Collected Works of Harry Johnson) by Alexander K. Swoboda, Harry G. Johnson

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Chapter 7

UNCOMMON ARGUMENTS FOR COMMON CURRENCIES

ROBERT A. MUNDELL

University of Waterloo

I THE CASE FOR A COMMON MONEY

When a commodity is used as money for a long time its monetary characteristic takes on a life of its own, independent of metallic content. At that stage it can be replaced by token money through one of the various techniques of debasement or devaluation or replacement by paper or ink money and the pure metal originally embodied in the coin itself can be turned to productive use. The resource saving is ‘seigniorage’.

There may be costs associated with doing away with the metallic content. If the management of a state is unintelligent or in the grip of factions, it may inflate the currency and reduce the value of the monetary ...

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