In The Curse of Cash, Rogoff (2016) makes two arguments. (i) Large denominations of currency are primarily used for illegal activity. Therefore, eliminating them would have benefits that far outweigh the costs in terms of lost seigniorage. (ii) The zero lower bound (ZLB) on the interest rate implied by the possibility of holding large amounts of currency is a costly constraint on central-bank policy. The best way to eliminate the ZLB is to eliminate all but small denominations of currency, ten dollars and lower, and to have those be in the form of coins. The style of the book, no models and no symbols, works fairly well for (i), but not so well for (ii). For (ii), the author is unclear about a crucial matter: what fiscal policy accompanies alternative interest-rate settings chosen by the central bank? ( JEL E26, E42, E43, E52, E58, E62)

Abstract In a pure-currency economy, money is the only durable object and people have private histories. In such economies, taxation is not feasible and in some of them trade is enhanced through the use of money. For economies of that kind in which a nondegenerate distribution of money, part of the state of the economy, affects trades and real outcomes, and in which trades affect the state at the next date, the conjecture is that there are transfer schemes financed by money creation that improve ex ante representative-agent welfare relative to what can be achieved holding the stock of money fixed.

When I teach monetary economics, one of the topics I discuss is coexistence of money and higher-return assets. My list of potentially serious explanations includes (i) a structure of Shapley-Shubik trading posts that gives a special role to one object (see Krishna [1] for an argument that a structure of posts that favors a low rate-of-return object is not robust); (ii) Zhu-Wallace [6], which, as carefully described by Lagos, divides the gains from trade in pairwise meetings between buyers and sellers in a way that can favor the holding of a low rate-of-return object; and (iii) the possibility that the higher-return assets are counterfeits (see, for example, Li et. al. [4]). Here, after setting out the Lagos idea in a simple way, I explain why I will not add it to this list. Because the main idea applies to any model, I set it out against the background of the alternating-endowments model (see [5]). There is one good per discrete date, a unit measure of people, and each person maximizes expected discounted utility of consumption with discount factor β ∈ (0, 1) and period utility function u: R++ → R, where u is twice differentiable and u ′ ′ < 0 < u ′.

A random‐matching model of money is used to deduce the effects of a once‐for‐all change in the quantity of money. It is shown that the change has short‐run effects that are predominantly real and long‐run effects that are in the direction of being predominantly nominal provided that the change is random and people learn its realization only with a lag. The change in the quantity of money comes about through a random process of discovery that does not permit anyone to deduce the aggregate amount discovered when the change actually occurs.

Monetary policy is analysed within a model that appeals to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds. The interaction between such legal restrictions and monetary policy is illustrated in a version of the overlapping generations model. The model shows that legal restrictions and the use of both currency and bonds permit the government to levy a nonlinear inflation tax and that such a tax may be better in terms of the Pareto criterion than a linear inflation tax.