A Theory of Money and Financial Institutions. Part 21. Fiat Money, Bank Money, the Float and the Money Rate of Interest,
YALE UNIV NEW HAVEN CONN COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
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In this paper it is shown that for any trading economy satisfying the conditions required to guarantee the existence of a competitive equilibrium price system there exist two associated trading economies one using bank money and the other using bank money and fiat money such that in the first competitive equilibrium is achieved with a zero rate of interest and in the second competitive equilibrium is achieved with a positive rate of interest. The fiat money issue is used to cover the float costlessly.
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