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Credible Currency: A Constitutional Perspective

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  • George Selgin

    ()

  • Lawrence White

    ()

Abstract

By contrast to private banks, public monetary authorities – central banks and currency boards – have limited credibility in making redemption or fixed-exchange-rate commitments. Their sovereign immunity obviates legal penalties for devaluing, and their monopoly status weakens reputational penalties. The softness of central bank promises invites speculative attack and currency crises. Privatization and decentralization of exchange-rate commitments provides a more credible currency by making redemption commitments legally enforceable and reputable. This contrast sheds light on (1) the breakdown of the classical gold standard and (2) the costs and benefits of dollarization. Copyright Springer Science+Business Media, Inc. 2005

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Bibliographic Info

Article provided by Springer in its journal Constitutional Political Economy.

Volume (Year): 16 (2005)
Issue (Month): 1 (01)
Pages: 71-83

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Handle: RePEc:kap:copoec:v:16:y:2005:i:1:p:71-83

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Web page: http://www.springerlink.com/link.asp?id=102866

Related research

Keywords: currency; credibility; monetary constitution;

References

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  1. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
  2. Roberto Chang & Andres Velasco, 1998. "The Asian Liquidity Crisis," NBER Working Papers 6796, National Bureau of Economic Research, Inc.
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  1. Respuestas a diez objeciones al patrón oro
    by Adrián Ravier in Punto de Vista Economico on 2012-05-23 13:06:50
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Cited by:
  1. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.
  2. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
  3. Maurizio Mistri, 2007. "Institutional changes and shifting ideas: a constitutional analysis of the Euro," Constitutional Political Economy, Springer, vol. 18(2), pages 107-126, June.
  4. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.

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