Reserve requirements, currency substitution, and seigniorage in the transition to European monetary union
AbstractThis article considers a transition toward European monetary union that combines increased substitution of currencies and greater monetary, financial, and fiscal policy coordination. It explores how such a transition would affect national inflation and interest rates and required reserve ratios when governments depend in part on seigniorage funding for public expenditures. We find that greater coordination of policies would lead to lower inflation and interest rates but higher reserve-requirement ratios. Because higher reserve-requirement ratios could place European banks at a competititve disadvantage, we conclude that the interaction between reserve requirements and seigniorage concerns makes it less likely that the gradualist approach of the Maastricht treaty is a sustainable means of transition to European union. Copyright Kluwer Academic Publishers 1996
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Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 7 (1996)
Issue (Month): 3 (July)
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Web page: http://www.springerlink.com/link.asp?id=100323
European Union; reserve requirements; currency substitution; F36; F42;
Find related papers by JEL classification:
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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