Credible Currency: A Constitutional Perspective

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Credible Currency: A Constitutional Perspective

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George Selgin ()
Lawrence White ()

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Lawrence H. 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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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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Roberto Chang & Andres Velasco, 1998. "The Asian Liquidity Crisis," NBER Working Papers 6796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Velasco, A. & Chang, R., 1998. "The Asian Liquidity Crisis," Working Papers 98-27, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
- Roberto Chang & Andres Velasco, 1998. "The Asian liquidity crisis," Working Paper 98-11, Federal Reserve Bank of Atlanta. [Downloadable!]
Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," RES Working Papers 4170, Inter-American Development Bank, Research Department. [Downloadable!]

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

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. [Downloadable!] (restricted)

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