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Seigniorage, Domestic Debt, And Financial Reform In China

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  • KEVIN M. KIME

Abstract

This paper describes the institutional features of China's hybrid economy that have allowed the government to earn high levels of seigniorage. It quantifies both the financial benefits and implicit costs to the government of extracting seigniorage from the economy. The analysis, which is based on the inside/outside money model of Gurley and Shaw (1960), indicates that seigniorage earnings in the period 1987—1994 were large, but were earned at the cost of a rising implicit government debt and potential future inflation. The paper also outlines how the Chinese government's ability to earn seigniorage in the future may decline as the economy becomes fully monetized and as reform alters the economy's unique institutional structure.

Suggested Citation

  • Kevin M. Kime, 1998. "Seigniorage, Domestic Debt, And Financial Reform In China," Contemporary Economic Policy, Western Economic Association International, vol. 16(1), pages 12-21, January.
    • Handle: RePEc:bla:coecpo:v:16:y:1998:i:1:p:12-21
    DOI: 10.1111/j.1465-7287.1998.tb00496.x
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    References listed on IDEAS

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    1. Collier, Paul & Gunning, Jan Willem, 1991. "Money creation and financial liberalization in a socialist banking system: Tanzania 1983-88," World Development, Elsevier, vol. 19(5), pages 533-538, May.
    2. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-856, July-Aug..
    3. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-963, September.
    4. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September.
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