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Seignorage and Central Bank Finance

Author

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  • Tomáš Holub

Abstract

The author of this paper criticizes the broad, cash-flow based concepts of seignorage that were introduced and emphasized by the economic literature of the 1990s (i.e., fiscal seignorage, total seignorage, etc.), which the author argues are ill justified and confusing. On the other hand, the two classical definitions of seignorage ? ie. monetary and opportunity cost seignorage ?are regarded as fully consistent and sufficient for theoretical purposes.The paper discusses the development of the classical concepts of seignorage in the Czech Republic since 1993. It shows that the fast growth of the monetary base in 1993-96 gave way to decline, above all due to reduced minimum reserve requirements. Monetary seignorage thus reached 1.2% of GDP in 1993-99 as a whole. Opportunity cost seignorage reached 1.4% of GDP in the same period. However, it was more than consumed by the central bank?s opportunity costs from holding foreign exchange reserves (associated with the existence of a risk premium on foreign exchange markets) and by the government's banking-sector bailouts.

Suggested Citation

  • Tomáš Holub, 2001. "Seignorage and Central Bank Finance," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 51(1), pages 9-32, January.
  • Handle: RePEc:fau:fauart:v:51:y:2001:i:1:p:9-32
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    File URL: http://journal.fsv.cuni.cz/storage/77_004_str_9_32.pdf
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    Cited by:

    1. Martin Cincibuch & Tomáš Holub & Jaromír Hurník, 2009. "Central Bank Losses and Economic Convergence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(3), pages 190-215, August.

    More about this item

    Keywords

    seignorage; central bank; monetary base; risk premium; public budgets;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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