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Seignorage in High Indebted Developing Countries

Listed author(s):
  • McPherson, M.F.
Registered author(s):

    Seignorage is the capital gain generated by the creation of reserve money. The literature on seignorage shows that countries with highly developed and deep financial systems generate few resources relative to national income (or government revenue) from seignorage. By contrast, countries with shallow financial systems and profligate governments appear to gain access to large amounts of real resources when they create reserve money. Results obtained in this paper suggest there is no anomaly. Highly indebted developing countries resorting to money creation to finance their activities do not generate large amounts of seignorage, particularly on a sustained basis. In fact, when all of the consequences of rapid reserve money growth are considered --- including the increased local currency cost of servicing and amortizing external debt due to exchange rate depreciation --- these countries incur a net loss from reserve money creation.

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    Paper provided by EAGER Publication/BHM in its series Equity and Growth through Economic Research with number 58.

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    Length: 39 pages
    Date of creation: 2000
    Handle: RePEc:fth:eagerd:58
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