More on Money Mining and Price Dynamics: Competing and Divisible Currencies

Abstract

We develop a random-matching model to study the price dynamics of divisible monies produced privately by using a time-consuming mining technology. There exists a unique equilibrium where the value of money increases until it reaches a steady state. There is also a continuum of perfect-foresight equilibria indexed by the starting value of the currency where the price of money inflates and bursts over time. Early on private money is held for a speculative motive and it acquires a transactional role when money supply becomes sufficiently abundant. We study gold- and crypto-mining technologies, fiat and commodity monies, single and competing currencies.