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Discussion Paper

A Theory of Money and Financial Institutions. Part V. The Rate of Interest on Fiat Money in a Closed Economy

In a well controlled monetary economy with no uncertainty and a money market, money is not merely a veil, it is a cocoon. There are no idle cash balances in a competitive monetary economy with a money market without uncertainty. The presence of uncertainty calls for the holding of cash.
In a trading economy with perfect foresight, without taxes, but with traders having positive time discounts the rate of interest on paper money is positive.
With uncertainty, fiat money is a form of insurance or generalized futures contract.