We characterize the optimal monetary policy in economies where agents have precautionary savings motives due to random production opportunities and the presence of borrowing constraints. Non storable production makes intrinsically useless outside money valuable to insure consumption. We show that the choice of the optimal money growth rate trades off insurance vs. incentives to produce: an expansionary policy pro- vides liquidity to borrowing constrained agents, while distorting production incentives. The joint presence of uncertainty and borrowing constraints implies that the Friedman rule leads to autarkic allocations. We show that when no aggregate information is avail- able to the policy maker, constant flat expansions are optimal when the average length of unproductive spells is sufficiently high. We then show that if some aggregate infor- mation is available, state dependent policy is able to decouple, at least partially, the insurance motive from the production incentive. The optimal state dependent policy prescribes expanding the money supply in recessions and contracting it in expansions: on average, the optimal state-dependent money growth is negative.