What is Money? Lessons from Introducing Digital Currency to a Barter Community
Dr. Michael Wong
Assistant Professor
The University of Hong Kong
I analyze how digital currency issuance and redemption by a private online platform affected the volume of trade in a large barter community in Toronto. The community initially banned cash, but subsequently introduced a digital token that could be transferred among users and redeemed at designated local stores for retail goods. Using comprehensive transactions data, I show that a large monetary expansion persistently increased transaction volume by 70% by enabling monetized trade. However, when token redemption was suddenly halted at stores, both barter and monetized transactions fell. These findings are best explained by a model wherein money functions as a medium of exchange and redemption eliminates non-monetary equilibria.
