Over the last few decades, much work has focused on potential mechanisms to govern the supply of money in a desirable manner. Interestingly, a rough mechanism seems to have emerged naturally following the collapse of the Somali state in 1991. Without a functioning government to restrict the supply of notes in circulation, Somalis found it profitable to contract with foreign printers and import forged notes. Forgers were constrained since Somalis would only accept denominations issued prior to 1991; larger denomination notes could not be issued profitably. Although the exchange value of the 1000 Somali shillings note fell from $US 0.30 in 1991 to US$ 0.03 in 2008, the purchasing power eventually stabilized, as the exchange value equaled the cost of producing additional notes.
So even money forgers equate the margins: they continued to create counterfeit notes until the marginal cost of production equaled the marginal benefit. That is, the Somalia notes fell in value until they were worth no more than the paper, ink, printer, electric, shipping, and other costs required to make them. That sounds a lot like commodity money to me. And this led to a stable monetary environment for Somalia despite the failed state. This fascinating monetary experiment runs contrary to the common monetary history of commodity (or commodity-backed) money turning into fiat money. In Somalia, the government fiat money turned into private commodity money. I look forward to seeing what lessons JP Koning, the monetary historian of the blogosphere, draws from this experience.