A MODEL OF A CURRENCY SHORTAGE

Until the mid-19th century, shortages of currency were common. Moreove r, a frequent policy response was a prohibition on the export of coins . We use a random matching model with indivisible money to explain a s hortage and to judge the desirability of a prohibition on the export o f coins. The model, although extreme in many regards, represents bette r than earlier models a demand for outside money and the problems that arise when that money is indivisible. It can also rationalize a prohi bition on the export of money. (C) 1997 Elsevier Science B.V. All righ ts reserved.