Renovatio monetae : Gesell taxes in practice

Gesell taxes on money holdings have received attention in recent decades as a way of alleviating the zero lower bound on interest rates. Less known is that such a tax was the predominant method used to generate seigniorage in large parts of medieval Europe for around two centuries. When the Gesell tax was levied, current coins ceased to be legal tender and had to be exchanged into new coins for a fee - an institution known as renovatio monetae or periodic re-coinage. This could occur as often as twice a year. Using a cash-in-advance model, we analyze under which conditions agents prefer to re-mint their coins and the system generates tax revenues. We also analyze how prices fluctuate over an issue period.