Currency substitution and seigniorage-maximizing inflation: the case of Cambodia

Sovannroeun Samreth

Applied Economics, 2010, vol. 42, issue 15, 1907-1916

Abstract: This article contributes a new empirical study on currency substitution in Cambodia. In our analysis, a model of money-in-the-utility function is adopted. The empirical results indicate that the elasticity of substitution between foreign and domestic real currency balances in Cambodia is high. Moreover, the high share of foreign real balances in providing domestic liquidity services in Cambodia is also confirmed by empirical analysis. Given these findings, the effects of the currency substitution on the government ability to gain from seigniorage revenue are also examined. The analysis from simulated results shows that the Cambodian government has little opportunity to gain from seigniorage revenue.

Date: 2010
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DOI: 10.1080/00036840701749035

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