Metal coin’s duality in its roles of commodity and currency creates a new variable, leverage level, which causes the problem of money selection and a huge gap of quantity between money issuance and circulation. Money will not definitely enter into circulation after issued, and besides problems regarding a whole group of money, the ones related to various money types within the group are equally important. This paper therefore establishes a new model of money circulation market to discuss problems neglected in traditional studies. Individuals, governments and counterfeiters are the participants and have preferences to supply more money with higher leverage price. When the government, who was the first to makes decisions, issues fiduciary coins, other two suppliers would immediate...[ Read more ]

Metal coin’s duality in its roles of commodity and currency creates a new variable, leverage level, which causes the problem of money selection and a huge gap of quantity between money issuance and circulation. Money will not definitely enter into circulation after issued, and besides problems regarding a whole group of money, the ones related to various money types within the group are equally important. This paper therefore establishes a new model of money circulation market to discuss problems neglected in traditional studies. Individuals, governments and counterfeiters are the participants and have preferences to supply more money with higher leverage price. When the government, who was the first to makes decisions, issues fiduciary coins, other two suppliers would immediately respond to it, causing a process of price-quantity fluctuations. Repeatedly occurring experiments of fiduciary coins in Chinese history were just the evidence. These processes lead to instability of quantity and price, and unpredictability of results of monetary policies. Money credit reform is necessary to tackle the problems, in which conditions of anti-counterfeiting technology and governmental promises must be met to establish a stable system of credit money. Based on this, cases in Song and Qing China with different backgrounds were selected out for a better understanding of interrelationship between these conditions, which show that without such technology, stabilizing the system was impossible even though the government did wish to make it through its self-restraint, and that is still impractical with fluctuations lasting for a longer period when there were no governmental promises aiming to establish a social expectation making the system automatically adjusted, even though there was the technology and a relatively comprehensive legal framework. Only when both the conditions of technology and governmental promises were met, which would be best with a supplement of a legal framework, could the problems be fundamentally solved.