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Liquidity preference and interest-bearing money: the Ottoman Empire, 1840–1851

Published online by Cambridge University Press:  27 February 2013

Richard C. K. Burdekin  and
Meric Keskinel
Richard C. K. Burdekin*
Affiliation:
Robert Day School of Economics & Finance, Claremont McKenna College
Meric Keskinel*
Affiliation:
Department of Behavioral & Social Sciences, West Los Angeles College
*
1Corresponding author: R. Burdekin, Jonathan B. Lovelace Professor of Economics, Claremont McKenna College, 500 E. Ninth Street, Claremont, CA 91711, USA, rburdekin@cmc.edu.
M. Keskinel: KeskinM@wlac.edu.
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Abstract

Legal restrictions theory suggests that interest-bearing money would dominate if there were no legal impediments precluding competition with non-interest-bearing currency. There are very few historical examples with meaningful issues of interest-bearing currency, however, and these tend to occur during extreme circumstances like civil war. The Ottoman Empire in the 1840s offers an unusual opportunity to observe large-scale issuance of interest-bearing notes under stable conditions over an extended period of time. This experience features government-issued interest-bearing money circulating in the absence of legal restrictions – with the data pointing to a liquidity preference favouring the smaller denominations most useful in daily transactions.

Keywords

interest-bearing currencylegal restrictionsOttoman EmpireIstanbul

JEL classification

E42: Monetary Systems • Standards • Regimes • Government and the Monetary System • Payment Systems N21: U.S. • Canada: Pre-1913
Type
Articles
Information
Financial History Review , Volume 20 , Issue 1 , April 2013 , pp. 91 - 102
Copyright
Copyright © European Association for Banking and Financial History e.V. 2013

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