The Technological Role of Fiat Money

This article argues that fiat money’s only technological role in an economy is to act as societal memory: money allows people to credibly record some aspects of their transactions and make that record accessible to other people. This recordkeeping role is demonstrated in the three standard paradigms of fiat money: the overlapping generations, turnpike, and search models. In these models, if a new economy is created by removing the money and replacing it only with a historical record of all transactions, known to everyone in the economy, then the original monetary allocation is still achievable as an equilibrium. This article is a less technical presentation of the ideas in the author’s study, “Money is Memory,” which is forthcoming in the Journal of Economic Theory. The article appears in the Minneapolis Fed’s Quarterly Reviewwith the permission of Academic Press.