Ruling out speculative hyperinflations - The role of the government

In this paper we show that if the government can levy taxes to back the currency, speculative hyperinflations are ruled out as equilibrium outcomes. This is so even though convertibility is never observed in equilibrium. The only observational difference between a pure hat money economy and a convertible economy as the one described in this paper is the potential of the former to exhibit speculative hyperinflations. The lack of empirical support for those speculative paths can be taken as evidence against interpreting modern economies as pure fiat money systems.