Reserve requirements, currency substitution, and seigniorage in the transition to European monetary union
Rent the article at a discountRent now
* Final gross prices may vary according to local VAT.Get Access
This article considers a transition toward European monetary union that combines increased substitution of currencies and greater monetary, financial, and fiscal policy coordination. It explores how such a transition would affect national inflation and interest rates and required reserve ratios when governments depend in part on seigniorage funding for public expenditures. We find that greater coordination of policies would lead to lower inflation and interest rates but higher reserve-requirement ratios. Because higher reserve-requirement ratios could place European banks at a competititve disadvantage, we conclude that the interaction between reserve requirements and seigniorage concerns makes it less likely that the gradualist approach of the Maastricht treaty is a sustainable means of transition to European union.
- Aizenman, Joshua (1992) “Competitive Externalities and the Optimal Seigniorage”,Journal of Money, Credit, and Banking 24, 61–71.
- Baltensperger, Ernst (1992) “Reserve Requirements and Economic Stability”,Journal of Money, Credit, and Banking 143, 205–215.
- Bacchetta, Philippe and Ramon Caminal (1992) “Optimal Seigniorage and Financial Liberalization”,Journal of International Money and Finance 11, 518–538.
- Brock, Philip, (1989) “Reserve Requirements and the Inflation Tax”,Journal of Money, Credit, and Banking 21, 106–121.
- Canzoneri, Matthew B. and Behzad T. Diba (1993) “Currency Substitution and Exchange Rate Volatility in the European Community”,Journal of International Economics 35, 351–365.
- Canzoneri, Matthew B and Behzad T. Diba (1992) “The Inflation Discipline of Currency Substitution”,European Economic Review 36, 827–845.
- Canzoneri, Matthew B. and Dale W. Henderson (1991)Monetary Policy in Interdependent Economies. Cambridge, MA: MIT Press.
- Canzoneri, Matthew B. and Carol Ann Rogers (1990) “Is the European Community an Optimal Currency Area? Optimal Taxation Versus the Cost of Multiple Currencies”,American Economic Review 80, 419–433.
- De Grauwe, Paul (1994) “Towards European Monetary Union without the EMS”,Economic Policy 18, 147–185.
- Drazen, Allan (1989) “Monetary Policy, Capital Controls, and Seignoriage in an Open Economy”. In Marcello De Cecco and Alberto Giovannini (eds.),A Euorpean Central Bank? Cambridge, U.K.: Cambridge University Press.
- Fratianni, Michele, Jürgen von Hagen, and Christopher J. Waller (1992) “The Maastricht Way to EMU,”Essays in International Finance No. 187, Princeton University.
- Friedman, Milton (1969) “The Optimum Quantity of Money”. InThe Optimum Quantity of Money and Other Essays. Chicago: Aldine.
- Gros, Daniel (1993) “Seigniorage and EMU: The Fiscal Implications of Price Stability and Financial Market Integration”,European Journal of Political Economy 9, 581–601.
- Gros, Daniel (1989) “Seigniorage in the EC: The Implications of the EMS and Financial Market Integration”. International Monetary Fund Working Paper No. 89-7.
- Horrigan, Brian R. (1988) “Are Reserve Requirements Relevant for Economic Stabilization?”Journal of Monetary Economics 21, 97–105.
- Klein, Martin and Manfred Neumann (1990) “Seigniorage: What Is It and Who Gets It?”Weltwirtschaftliches Archiv 126, 205–221.
- Mizen, Paul and Eric J. Pentecost (1994) “Evaluating the Empirical Evidence for Currency Substitution: A Case Study of the Demand for Sterling in Europe”,Economic Journal 104, 1057–1069.
- Romer, David (1985) “Financial Intermediation, Reserve Requirements, and Inside Money”,Journal of Monetary Economics 16, 175–194.
- Rovelli, Riccardo (1994) “Central Banking, Seigniorage, and the Financing of the Government.” Paper presented at Conference on Central Bank Independence and Accountability, Bocconi University, Milan, Italy, March 4.
- Sibert, Anne (1994) “The Allocation of Seigniorage in a Common Currency Area”,Journal of International Economics 37, 111–122.
- Treaty on European Union (1992).
- von Hagen, Jürgen, and Michele Fratianni (1993) “The Transition to European Union and the European Monetary Institute”,Economics and Politics 5, 167–186.
- Reserve requirements, currency substitution, and seigniorage in the transition to European monetary union
Open Economies Review
Volume 7, Issue 3 , pp 257-273
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
- Additional Links
- European Union
- reserve requirements
- currency substitution
- Industry Sectors