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Maximizing Seignorage Revenue during Temporary Suspensions of Convertibility: A Note

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  • Bordo, Michael D
  • Redish, Angela

Abstract

This note extends the theory of the revenue maximizing rate of monetary growth to the case of a temporary suspension of convertibility. It also suggests a methodology for the interpretation of monetary behavior during historical periods of inconvertibility. First we analyze the case of a government with a monopoly over currency issue. The government maximizes seignorage revenue by generating an inflation, but the terminal condition of a return to convertibility implies that the price level must drop at the point of suspension of convertibility, so that there is no discontinuity at the date of resumption. We then consider the behavior of a private banking system whose monetary liabilities are temporarily inconvertible. Copyright 1993 by Royal Economic Society.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 45 (1993)
Issue (Month): 1 (January)
Pages: 157-68

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Handle: RePEc:oup:oxecpp:v:45:y:1993:i:1:p:157-68

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  1. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  2. Michael D. Bordo & Eugene N. White, 1991. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
  3. Calomiris, Charles W, 1988. "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 40(4), pages 719-50, December.
  4. Smith, Gregor W & Smith, R Todd, 1990. "Stochastic Process Switching and the Return to Gold, 1925," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(399), pages 164-75, March.
  5. Auernheimer, Leonardo, 1983. "The Revenue-Maximizing Inflation Rate and the Treatment of the Transition to Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 15(3), pages 368-76, August.
  6. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, Elsevier, vol. 6(1), pages 39-57, January.
  7. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 79(4), pages 846-56, July-Aug..
  8. Michael D. Bordo & Finn E. Kydland, 1990. "The Gold Standard as a Rule," NBER Working Papers 3367, National Bureau of Economic Research, Inc.
  9. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 6(4), pages 423-53, November.
  10. Bordo, Michael D. & White, Eugene N., 1991. "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 51(02), pages 303-316, June.
  11. Auernheimer, Leonardo, 1974. "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(3), pages 598-606, May/June.
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Cited by:
  1. Newby, Elisa, 2012. "The suspension of the gold standard as sustainable monetary policy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(10), pages 1498-1519.
  2. António Portugal Duarte & João Sousa Andrade, 2005. "How the gold standard functioned in Portugal: an analysis of some macroeconomic aspects," Method and Hist of Econ Thought, EconWPA 0505002, EconWPA.
  3. Elisa Newby, 2007. "The Suspension of Cash Payments as a Monetary Regime," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 200707, Centre for Dynamic Macroeconomic Analysis.
  4. Nikolay Nenovsky & Kalin Hristov, 2001. "Official Eurozation of Bulgaria: Pluses and Minuses," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 64-80.
  5. Jagjit S. Chadha & Elisa Newby, 2013. "’Midas, transmuting all, into paper’: the Bank of England and the Banque de France during the Napoleonic Wars," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1330, Faculty of Economics, University of Cambridge.
  6. Chadha , Jagjit S. & Newby, Elisa, 2013. "Midas, transmuting all, into paper: The Bank of England and the Banque de France during the Revolutionary and Napoleonic Wars," Research Discussion Papers, Bank of Finland 20/2013, Bank of Finland.
  7. Ali Coskun Tunçer, 2013. "The Black Swan of the Golden Periphery: The Ottoman Empire during the Classical Gold Standard Era," Working Papers, Department of Economic and Social History at the University of Cambridge 14, Department of Economic and Social History at the University of Cambridge.

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