https://macropaperwarehouse.com/authors/gu-jin/Gu JinHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/debasements-and-small-coins-an-untold-story-of-commodity-money/https://macropaperwarehouse.com/papers/debasements-and-small-coins-an-untold-story-of-commodity-money/<p>This paper applies a multiple-denomination commodity money model — building on Lee, Wallace, and Zhu (2005) — to coinage episodes in late medieval England, and derives two main findings. Shortages of small coins are severely inconvenient because halfpennies and farthings serve not merely as small change but as consumption-smoothing instruments: parameterized to 15th-century England (per-capita silver approximately 35 grams, penny approximately 1 gram), the model shows that adding a halfpenny is highly welfare-improving for poor agents even at infrequent expenditure, and welfare-improving for all agents when monetary transactions occur at least twice weekly. Debasing the penny by 50 percent has approximately the same welfare effect as introducing a halfpenny and replicates the three stylized facts of the debasement puzzle — large minting volumes, cocirculation of old and new coins, and no additional mint inducement — as equilibrium outcomes rather than paradoxes. However, full-bodiedness creates a commitment device against over-issuance that cannot be replicated by sufficiently small coins, since precious metals have a practical lower bound on coin content, so debasement relieves but does not solve the structural small-coin problem, pointing to the historical necessity of a transition to fiat money.</p>