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Copyright of Journal of Economic Policy Researches / İktisat Politikası Araştırmaları Dergisi is the property of Journal of Economic Policy Researches / Iktisat Politikasi Arastirmalari Dergisi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

In the paper we show that common currency areas tend to amplify the inefficiencies associated with lack of credibility of monetary policy. Lack of commitment in redistribution of seigniorage leads to excessive inflation and suboptimal taxation in the Monetary Union. Lack of commitment to inflation creates multiple inefficient equilibria that do not exist in a regime of national monetary independence. [ABSTRACT FROM AUTHOR]

The widespread prevalence of debasements in medieval Europe constitutes a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. I explore two properties of commodity monies that might make holding light coins more desirable, namely indivisibility and imperfect recognizability. If the agent trades indivisible coins, there are inefficiencies arising from over production of goods when the agent uses the heavier coin. Also, when coins are imperfectly recognizable, the heavy coin faces adverse selection. I find that under some parameters, indivisibility by itself leads to positive revenue following debasements, but in a way that eliminates co‐circulation of coins. While with a sufficient degree of imperfect information, debasements can generate positive revenue and also co‐circulation of coins. [ABSTRACT FROM AUTHOR]

During the U.S. Civil War, the Confederate Congress adopted three currency reforms that were intended to reduce the quantity of Treasury notes in circulation by inducing the money-holding public to exchange their notes for long-term bonds. In this paper, we examine the political factors that influenced the adoption of the reforms and their effect on the flow of seigniorage - revenue that the government derived by using the newly-printed Treasury notes to purchase the goods and services it required. We argue that the bifurcation of the Confederate Congress into two groups – those legislators that represented the Confederacy's interior and those from areas no longer under Confederate control – contributed to the adoption of the reforms. Our findings indicate that representing an area outside of the rebel government's control increased the likelihood that a legislator would support efforts to reform the currency by over 90 percent. In addition, our results indicate that the rate of monetary expansion in the South was below that which would have maximized the revenue from seigniorage. We find that the reforms reduced the flow of seigniorage by approximately 57 percent, depriving the Confederate government of much-needed revenue. [ABSTRACT FROM AUTHOR]

Empirical investigation of the average level of seigniorage in a cross-section of (up to) ninety countries for the period 1971-1990 suggests that optimum tax theory explains up to 40 percent of the cross-country variation in seigniorage, since seigniorage is higher where its deadweight tosses are probably lower and where deadweight losses from conventional taxation are probably higher, but that average government spending is nota determinant of seigniorage. Practical concerns about financing transitory government spending explain some of the remaining variation in seigniorage, and central bank independence and political instability are useful as well. In contrast, 90 percent of the cross-country variation in conventional taxation appears to be determined by the level of government spending and deadweight losses, and additional variables do not add to the results. [ABSTRACT FROM AUTHOR]

We examined a setting where decision making about financing a given amount of government spending is decentralized. Seigniorage is the residual tax that passively adjusts to meet the budget constraint. We place this budget-making process in a repealed game setting and characterize the cooperative tax-seigniorage function. Three main results are found: (i) Seigniorage and transitory changes in output are positively correlated. This result holds alter controlling for changes in government spending, (ii) A positive (negative) covariation between current-period government spending and transitory output strengthens (weakens) the positive relationship between seigniorage and transitory output, (iii) Seigniorage is negatively correlated with trend output growth. Time series empirical tests using annual data for twenty OECD countries support the first two results. A test using cross-section data on seventy-live countries confirms the third hypothesis. [ABSTRACT FROM AUTHOR]

The article presents an analysis of the multiple reserve requirement scheme of central banking and national fiscal and monetary policy. The traditional monetary concerns of small open economies are described, focusing on managing inflation while still financing the public deficit, usually through required bank reserve levels. The alternative method of multiple reserve requirements for differing currencies, cash and government securities, is formally outlined. Impacts of this scheme on inflation, seigniorage, and welfare are explored.

The article presents an analysis of the economic conditions of Argentina between the 1970s and 1990s in order to explore the connections between seigniorage and inflation effects. Econometric models providing a Laffer curve between the two elements are described. Three separate theories explaining the high inflation in relation to this curve are given and analyzed through the case of Argentina, questioning whether the inflation rate was above the revenue-maximizing rate. Additional elements explored include monetary/exchange rate paradigms and money demand.

The article analyzes the impact of money demand and seigniorage on high inflation phenomena. A model incorporating the three macroeconomic elements is developed through an optimizing consumer-investor-portfolio allocator with cash-in-advance constraints. It also presents both individual-country and combined cross-country time-series evidence that supports the notion that the semi-elasticity of money demand with respect to inflation varies with inflation itself. Empirical evidence from high-inflation countries during the 1960-1990 is also used to provide estimates of the seigniorage-maximizing inflation rate.

The article reports on inflation tax in an economy where there is no centralized decision maker, on competitive externalities, and on optimal seigniorage. Yugoslavia is given as an example of a monetary union that generated inflationary bias because it did not address competitive externalities. The inflation tax was determined by a group of decision makers who competed for tax revenues and printed paper money via the central bank, which functioned only as a printing agency. The central bank's failure to impose fiscal discipline and the ethnic and political frictions among provinces are assumed to be responsible for inflation. Budget constraints, time-consistent equilibrium, and the elimination of inflationary bias by a central government's control over monetary policy are mentioned.

The article comments on "Seigniorage As a Tax: A Quantitative Evaluation," by Ayse Imrohoroglu and Edward C. Prescott, which reported on simulation experiments concerning financial intermediation and interest-bearing and noninterest-bearing assets. The issue is the validity of their model for determining the costs of inflation. "Indexation and Discretionary Monetary Policy," a paper written by this article's author and Larry Ball, is discussed, as well as a staggered contract model for estimating wage and price variability during inflationary periods. The use of cash to smooth consumption and the inflation tax relative to the U.S. gross national product are mentioned.

The article evaluates seigniorage as a tax via a general equilibrium model, the efficacy of seigniorage relative to an income tax, and tax-monetary arrangements in the United States. Three sets of experiments are discussed which relate to interest payments on deposit accounts. The consumption smoothing role of liquid assets, inflation rate volatility, uncertainty in monetary policy, and the welfare cost of inflation are examined in mathematical models to determine after-tax real returns on assets. Data is given for economies with intermediation and inflation rates at three percent and six percent and for average real returns on Treasury Bills and savings accounts before and after taxation.

Despite the lack of political accountability, ancient autocracies maintained a level of monetary stability that rivals modern democracies. This paper hypothesizes that it is the threat of counterfeiting that has constrained currency debasement. Unwilling to share seigniorage with counterfeiters, who are active only if currency is debased, the government refrains from debasement unless in extreme fiscal situations. To document the facts, we build a database of historical Chinese copper coins that covers the period from the Qin dynasty (221 BC-207 BC) to the Republic of China. We also use the introduction of the steam press in late Qing China as a natural experiment to test the theory. The steam press produced coins of fine patterns that counterfeiters were unable to mimic. As the theory predicts, the removal of the threat of counterfeiting triggered the most serious debasement in the history of the Qing dynasty (1644-1912). [ABSTRACT FROM AUTHOR]

The article addresses the question of whether the U.S. Congress should allow banks to issue their own private currency. In this discussion, the article describes the role of the central bank in operating or regulating a payments system, the technological advances in currency, the effect of the National Currency Act, the loss of seigniorage, the effectiveness of monetary policy, the stability of monetary system, the history of uniform currency, and the need to develop models that explain the use and form of money.

The article refers to essays in "Handbook of Monetary Economics," comments on research methods used in "Seigniorage As a Tax: A Quantitative Evaluation," by Ayse Imrohoroglu and Edward C. Prescott, and focuses on the author's own views concerning inflation. Prescott and Imrohoroglu examined the welfare effect of inflation taxes with an experiment based on fixed nominal interest rates. The author states that transitory and persistent inflation result from negative aggregate supply shocks and from increases in the inflation tax without reductions in other taxes. He also states that consumers understand that higher price levels are associated with negative aspects of real disposable incomes.

The article focuses on the relationship between inflation rate and tax rate in the U.S. The article cites the work of economists James M. Poterba and Julio J. Rotemberg, who considered a framework in which government concerns with minimizing the deadweight loss of tax collection yields a suggested positive relationship between the inflation rate and the tax rate. In other words, as government spending rises, optimal financing would require raising both tax rates and seignorage so as to equalize the deadweight loss of the marginal dollar earned across the two alterative revenue-generating sources.

Controlling for a more comprehensive set of economic structure variables and using system generalized method of moment ( GMM) dynamic panel estimation, we consider the determinants of seigniorage. While we confirm some results found in previous literature, including an inverse relationship of financial development and exchange rate management to seigniorage, we find little evidence that political instability and polarization lead to greater reliance on seigniorage. We also find robust evidence that the size of the shadow economy and natural resource rents are directly related to seigniorage, the latter result likely a result of exchange rate management. Thus, an effective strategy to reduce reliance on seigniorage is to lower the incentives to operate in the shadow economy, while exchange rate management may be counter-productive in countries with considerable natural resource rents. ( JEL E5, O50) [ABSTRACT FROM AUTHOR]

Most of countries covered by natural forests are developing countries, with limited ability to levy taxes and restrained access to international credit markets. Consequently, they are amenable to draw heavily on two sources of government financing, namely seigniorage and deforestation revenues. First, we develop a theoretical model emphasizing a substitution effect between seigniorage and deforestation revenues. Second, a panel-data econometric analysis over the 1990–2010 period confirms our findings. Consequently, a tighter monetary policy hastens deforestation. Third, we extend the theoretical model and show that international transfers dedicated to forest protection can upturn the positive link between tighter monetary policies and deforestation, and then discuss the relevance of this finding with respect to recent institutional arrangements. [ABSTRACT FROM AUTHOR]

We adapt the monetary model (Sidrauski 1967) to study the hypothesis of anticipation of future consumption. We assume that anticipation of future consumption affects an agent's instantaneous utility and that all effects of future consumption on current well-being are captured by the stock of future consumption. Monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate (and thus the Friedman rule) is destabilizing. Given this, we can derive a 'just stable' equilibrium nominal interest rate with matching definitions for inflation and monetary growth. We demonstrate that these implied lower bounds match their historical analogues well. [ABSTRACT FROM AUTHOR]

El artículo se enfoca en la elaboración de un modelo económico, lo cual es una moneda única que desempeña el papel de medio de cambio entre los dos países. Se enfatizan que los gobiernos de los dos países tienen la libertad para determinar la medida para obtener el señoreaje de la moneda común y para determinar su saldo fiscal. Los autores demuestran que los hechos de cada gobierno afectan el rendimiento económico del otro país.

Copyright of Historical Studies is the property of Canadian Catholic Historical Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Financial crisis triggered in 2007 outlined once again the weaknesses and flaws of the current international financial system. In the mean time it created the opportunity for rethinking and redrawing its architecture in order to make it more flexible, more legitimate, more resistant to shocks and more effective in preventing and addressing financial crises. Based on these considerations our study aims, in its first part, to summarize the main flaws of the current monetary system. In its second part, the study will try to present the challenges launched to the system as a consequence of the crisis' effects, describing possible actions and treatment options in order to address these challenges and flaws. In this way we intend to contribute to the ongoing debate on strengthening the international monetary system. [ABSTRACT FROM AUTHOR]

In developing countries, governments are tempted to, and they often do finance their budget deficits by issuing currency. This leads to inflation, and ultimately, the source of the incomes to the budget are the inflation tax and the seigniorage. The mechanism that is used is the direct loan, from the Treasury (the Government's cash desk) from the central bank, which means creating a an additional monetary base. Basically, seigniorage is not different from the financing of the budget deficit, by the central bank, by buying government bonds, and the effect of this practice is the emergence if the phenomenon of taxing inflation, by deteriorating the value of the financial assets owned by banks and non-banks. This paper is structured as follows: conceptual aspects concerning the seigniorage in section 1, section 2 showing the models for calculate the level of seigniorage, section 3 estimates the evolution of Seigniorage during the crisis. [ABSTRACT FROM AUTHOR]

We examine econometrically the real effects of paper money's introduction into colonial New England over the 1703-1749 period. Departing from earlier analyses that focus primarily on the depreciation of paper money in the region, we show that expansion of the money stock promoted growth in modern sector activity and not the other way around. We also find that bills emitted for seigniorage purposes had a positive effect on the modern sector, while bills issued through loan banks did not. [ABSTRACT FROM AUTHOR]

The fiscal performance of many sub-Saharan African countries has been quite dismal over the past, with a number of them accumulating huge deficits. This paper examines fiscal sustainability in the West African Monetary Zone (WAMZ). It departs from the standard model of fiscal sustainability and adopts the optimal seigniorage and tax smoothing model. Using vector autoregressive model and data from two selected countries, Ghana and Nigeria, the study finds no concrete evidence in support of the optimal seigniorage and tax smoothing in WAMZ. The findings call for important fiscal reforms to reverse the persistent fiscal deficits. Such reforms should include measures to ensure compliance and eliminate fiscal corruptions. [ABSTRACT FROM AUTHOR]

Copyright of Economic History Research / Investigaciones de Historia Económica is the property of Asociacion Espanola de Historia Economica and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

In the summer of 1861, the United States embarked on its first widespread use of paper money: the Demand Notes of 1861. Although their convertibility into gold ended at the end of that year, they remained acceptable for tariff payment at a par with gold coin while they were gradually replaced with paper money that did not share this provision, the Greenbacks. We present daily observations of exchange rates between the Notes, Greenbacks, and gold for the extended period during which they simultaneously circulated. These exchange rates substantiate our revisionist notion that the Notes were replaced because the tariff provision prevented them from generating sufficient seigniorage for wartime needs. ( JEL E42, N12, N22) [ABSTRACT FROM AUTHOR]

This article provides an overview of recent research into the macroeconomic costs and benefits of monetary unification. We are primarily interested in Europe's monetary union. Given that unification entails the loss of a policy instrument, its potential benefits have to be found elsewhere. Unification may serve as a vehicle for beneficial institutional changes. In particular, it may be a route toward an independent monetary policy, which alleviates the scope for political pressure to relax monetary policy. Unification also eliminates harmful monetary policy spillovers and competitive devaluations. We explore how disagreement between the monetary and fiscal authorities about their policy objectives can lead to extreme macroeconomic outcomes. Further, we pay considerable attention to the desirability (or not) of fiscal constraints and fiscal coordination in a monetary union. Monetary commitment and fiscal free riding play a key role in this regard. Similar free-riding issues also feature prominently in the analysis of how unification influences structural reforms. We end with a brief discussion of monetary unification outside Europe. The cost-benefit trade-off of unification may differ substantially between industrialized and less-developed countries, where differences in fiscal needs and, hence, the reliance on seigniorage revenues may dominate the scope for unification. [ABSTRACT FROM AUTHOR]

This paper investigates the inflationary effect of central government deficit. While the answer from conventional economic theory and monetary authorities emphases on the strong connection that characterize these two variables there has been controversial empirical evidence in measuring the strength and significance of the relationship: inflation-government deficit. In particular we investigate the causality between government deficit and inflation in the Romanian post-socialist economy (1997-2007) using a VECM model in which inflation is non-linearly related to fiscal deficit through narrow money and M1. Our purpose is to estimate this relationship as an intrinsically dynamic one using the conceptualization proposed by Terrones and Catao (2005). The focus is on the weak form of the Fiscal Theory of Price (FTP) which is closely related to the quantitative money theory that connects inflation with money. The econometrical results conclude that for the period considered the relationship deficit/GDP-inflation is statistically significant, improvement in the deficit/GDP ratio generating a smaller inflation. This connection suggests future policy implication that can be of success in the process of price stabilization. [ABSTRACT FROM AUTHOR]

What is the seigniorage-maximizing level of inflation? Three models' formulae for the seigniorage-maximizing inflation rate (SMIR) are compared. A sticky-price model prescribes a somewhat lower SMIR to Cagan's formula and a variant of a flex-price model due to Kimbrough (2006) . The models differ markedly in how inflation distorts the labor market: The sticky-price (Calvo) model implies that inflation and output are negatively related and that output is falling in price stickiness. Interestingly, if our version of the Calvo model is to be believed, the level of inflation experienced recently in advanced economies such as the United States and the United Kingdom may be quite close to the SMIR. [ABSTRACT FROM AUTHOR]

This paper reviews how central banks allocate seigniorage, based on systematic cross-country comparisons of their financial accounts. Central banks are classified as weak or strong, depending on their structural profitability. Weak central banks typically (although not exclusively) operate in smaller and less wealthy countries, lack independence from their governments, and are burdened by large nonperforming assets, compulsory transfers, and low capital. Notwithstanding their weak finances, these central banks tend to overspend with regard to their operating expenditures. Governance also appears to be a potential concern in many strong central banks, however, with operating expenditures often adjusting upward for high profitability and capital accumulation and downward for low profitability. Main policy implications are briefly reviewed.IMF Staff Papers (2007) 54, 563–589. doi:10.1057/palgrave.imfsp.9450017 [ABSTRACT FROM AUTHOR]

Realizing the inflationary potential of money creation, by the mid-1990s, most Central European countries had switched to market instrument–based monetary policy. Belarus continued to use money emission, gaining seigniorage and inflation tax. The productivity of the inflation tax can be analyzed by comparing the revenue actually raised from inflation tax with the revenue that could be raised if the quantity of money had risen at a constant rate. The present paper, based on Cagan's (1956) seminal work, analyzes the effect of inflation on seigniorage revenue in Belarus, drawing conclusions about the effectiveness of monetary policy in 1995–2002, and about the consequences of inflationary financing. [ABSTRACT FROM AUTHOR]

Recent studies have indicated that government bonds are an imperfect substitute for money in providing transaction services. Based on these studies, this article develops a theoretical framework showing that, as with money seigniorage, the government can gain an interest benefit from issuing government bonds. The article terms this interest benefit as ‘government bond seigniorage’. Further, the article estimates government bond seigniorage in comparison with money seigniorage for five countries (Australia, Canada, France, Italy and the United States) during the period 1959–2001. It is found that government bond seigniorage accounts for a larger percentage of Gross Domestic Product than money seigniorage, but also experiences greater fluctuations for all sample countries. [ABSTRACT FROM AUTHOR]

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The paper considers a monopolistically competitive intertemporally optimizing monetary economy featuring long-term growth. Inflatio is generated through sluggish price-setting and contributes to budgetary finance through seignorage. This setup permits exploration of the interaction between inflation and growth in a tractable way. Superneutrality holds in the long but not the short run. The budget deficit fuels inflation with a hysteresis. Growth and inflation are negatively correlated in the long run, with causality running from the former to the latter, and positively correlated in the short run regardless of the origin of shocks. Price flexibility precipitates adjustment but appears also to destabilize output. [ABSTRACT FROM AUTHOR]

The article discusses the Real (stabilisation) plan of Brazil and its failure of late. The main aims of the plan were; to achieve financial equilibrium without seignorage gains, to have a stable distribution of income in a non-inflationary and non-indexed environment, and remove inflation without introducing a currency board or dollarisation. Brazil should have been able to extract maximum profit out the unusual liquidity of the international credit markets with the plan. One of the inconsistencies in the plan was its relationship with short term and speculative capital inflows. The domestic liquidity increased rapidly as a result of the growth of the domestic public debt because of the Real plan.

The paper introduces decentralized policymaking into a game- theoretic model with output growth through capital accumulation, and in which the determination of taxes, seigniorage and the long- run growth rate of the economy reflects the strategic interactions between the government, the central bank and the private sector. The paper investigates, among other things, the impact on the long- run growth rate of a higher degree of inflation aversion of the central bank and a higher degree of inefficiency in the tax system. [ABSTRACT FROM AUTHOR]

A model is presented in which governments can select real expenditure levels that are feasible, but are sufficiently high that a balanced budget is impossible. Thus, governments with large expenditures are committed to inflationary finance schemes. This is the case, even though the governments in question have access to lump-sum taxes. In addition, the model can explain why poorer countries tend to make heavier use of the inflation tax than do wealthier countries, and can account for the existence of country-specific fiat monies. [ABSTRACT FROM AUTHOR]

This paper examines anomalies in the accounting procedures for the treatment of seigniorage on the Australian note and coin issue. It explains how the substitution of coins for notes leads to the unexpected result of reducing the budget deficit [ABSTRACT FROM AUTHOR]

How did it become possible to exchange apparently valueless pieces of paper for goods? This paper provides an equilibrium account of the transition between barter and fiat-money regimes. The explanation relies on the intervention of a self-interested government which must be able to promise credibly to limit the issue of money. To achieve credibility, the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money. The government's patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished. [ABSTRACT FROM AUTHOR]

This paper provides empirical evidence on the effects of financial repression on government finances. Financial repression is a combination of controls on international capital flows with restrictions on domestic interest rates. The result is an artificially low cost of domestic funding to governments. We estimate the government revenue from financial repression as the difference between the foreign and the domestic cost of funds, times the domestic stock of government debt. The evidence indicates that the revenue from financial repression can be quite substantial, and for several countries it is of same order of magnitude as seigniorage. (JEL H60, H63, 1487, F34, F36) [ABSTRACT FROM AUTHOR]

The importance of seigniorage relative to other sources of government revenue differs markedly across countries. This paper tries to explain this regularity by studying a political model of tax reform. The model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus, will rely more heavily on seigniorage. This prediction of the model is tested on cross-sectional data for 79 countries. We find that, after controlling for other variables, political instability is positively associated with seigniorage. [ABSTRACT FROM AUTHOR]

It is the purpose of this article to explore how bank regulation and the state of competition in the banking industry affect both government revenue and the bank profits. The model consists of a three-asset economy: government fiat money, with zero yield which serves as currency and reserves of banks; deposits issued by the banking system; and real assets, yielding a fixed real rate of return, set at zero for convenience. There is no uncertainty, the economy experiences no real growth, and the government controls the nominal supply of high-powered money and the reserve ratio on deposits issued by banks. Under these conditions the long-run equilibrium is marked by an inflation rate which is equal to rate of growth of high-powered money and is equivalent to the market rate of interest. This analysis demonstrates that the revenue derived from monetary expansion is critically dependent on the state of regulation and competition in the banking industry. Government seigniorage is higher if the banking system is competitive than if it is monopolized since deposit rates are lower under monopoly banking.

This paper formulates a model of commodity money that circulates by tale, and applies it to a variety of situations, some of which seem to confirm, and others to contradict, 'Gresham's Law'. We analyze how debasements could prompt decisions of citizens voluntarily to participate in recoinages that subjected them to seigniorage taxes. [ABSTRACT FROM AUTHOR]

We design and analyze experimental versions of monetary overlapping generations economies under alternative policy regimes. Economies with a constant level of real deficit financed through seignorage, economies in which the level of deficit is adapted in order to follow a monetary policy with a target rate of inflation, and economies with preannounced changes in deficit levels are reported here. We also examine the behavior of an economy with no stationary competitive equilibrium. Our time series are compared to rational expectations equilibrium paths and to adaptive learning dynamics. [ABSTRACT FROM AUTHOR]

The attention of the public has been fixed for some time on the continued rise of prices and the increase in the cost of living commonly supported to be a consequence. From time to time suggestions have been made with a view of providing checks or remedies for changes in prices. The most notable of recent years is that brilliant suggestion recently made by Professor Irving Fisher for abstracting seigniorage on the coinage of gold in order to keep the value of the gold coin at a point determined by index numbers; or, in other words, by the indirect application of the so-called tabular or multiple standard. But one must be on guard against permitting oneself to be carried away with belief in the possible success of a brilliant device without careful consideration of the question whether the thing that is accomplished by this device is the thing at which after all one is aiming. Public uneasiness aroused by the change of prices in one direction or another over considerable periods and to a considerable degree, is not a new phenomenon; nor are attempts to meet the difficulties, real or supposed, which their changes cause, of recent origin.

This article examines the net seigniorage gain accruing to a single international-currency country, Great Britain, as of August 1971. Theoretical proposition states that the size of seigniorage for a country whose currency is used internationally depends fundamentally on that country's monopoly position as a source of international money. If the country happens to be a total monopolist, its net gain from seigniorage is bound to be considerable. But if, alternatively, it is confronted by competition from other internationally accepted money instruments, then its net gain will be correspondingly reduced, since it will now be obliged to pay interest on its liabilities in order to induce foreign depositors to retain their holdings of its currency. Moreover, the greater the competition from other sources, the higher the interest that will have to be paid. The conclusion follows that, if conditions of competition are perfect and free entry is guaranteed, then no significant seigniorage gain may be expected to accrue at all, on a net basis, to a country issuing the international currency. Originally, seigniorage referred to the difference between the circulating value of a coin and the cost of bullion and minting, involving a once-for-all gain to the coin's issure.

This article presents the author's comments on Professor Fritz Machkup's article entitled The Cloakroom Rule of International Reserves. I would like to argue that the political problems with seignorage arise only if its distribution among countries is carried out in such a way that it involves an ultimate transfer of resources between countries and that there exists one logically possible and perhaps empirically feasible arrangement which substitutes the criteria of monetary neutrality, determinable by technicians, for criteria of political expedience, world equity and others, involving value judgments and haggling by politicians. Seignorage is only an apparent gain in resources on the consolidated world balance sheet since money itself has no utility attached to it other than through the services it can provide. In the real world where the output of countries does not grow at equal rates, the dependence on foreign trade, preferences and costs of making balance-of-payments adjustments change through time, economies of scale in the demand for international means of payment may occur, the income elasticity of the demand for money may be different from unity, and the criterion of neutrality so easily developed in my simple model is much more difficult to formulate.