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The Fiscal Implications of Parallel Currencies

Author

Listed:
  • Bahaj, Saleem
  • Reis, Ricardo

Abstract

By controlling the scarcity of an offshore parallel currency, policymakers can manage capital flows and steer the exchange rate. This is an alternative policy to setting the rate of a Tobin tax. However, its fiscal implications are distinct, and this paper lays them out. Having a parallel currency creates both seigniorage and liquidity revenues. The two revenues have different sizes and different Laffer curves, both of which vary with the regime for the exchange rate, with liquidity policies, and with the size of the offshore market. Quantitatively, the fiscal footprint of offshore money management is small and the Laffer curve is flat, boosting the chances that it can be used independently of fiscal pressures.

Suggested Citation

  • Bahaj, Saleem & Reis, Ricardo, 2026. "The Fiscal Implications of Parallel Currencies," CEPR Discussion Papers 21925, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21925
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    File URL: https://cepr.org/publications/DP21925
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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