Seigniorage, Delegation and Common Currency: Why Monetary Unions May Fail?
AbstractWe provide a parable that can explain why monetary unions have historically been dissolved following political separation. Using a simple model of government finance in a common currency area, it is shown that delegation to an "inflationary" central banker is an optimal policy when countries struggle for seigniorage revenues, whether delegates coordinate monetary policy or not. Furthermore, a common central bank, in which representatives coordinate monetary policy, will reach an outcome that is Pareto-inferior to that produced by a non-cooperative seigniorage war. Accordingly, without political dialogue regarding the designation of the representatives, a monetary union can fail. Copyright 2002 by Kluwer Academic Publishers
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Public Choice.
Volume (Year): 112 (2002)
Issue (Month): 3-4 (September)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100332
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.