Seigniorage, banking, and the optimal quantity of money

The net seigniorage in an economy is positively dependent on the inflation rate and the reserve requirement is negatively dependent to the state of payment transaction technology and the degree of competition in the banking industry. The study was carried out using the opportunity cost of seigniorage and an oligopolistic model of the banking system to evaluate the impact of changes on key parameters such as the inflation rate and degree of competition in the banking industry. The seigniorage concept is likewise closely connected to the welfare loss concept and to the optimal monetary quantity concept in public finance theory.