Fiscal Seigniorage and Price Level Determination in a Currency Union

Sebastian Schmidt

No 21001, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: I study price level determination in a currency union when some member countries' government securities earn a convenience yield. These "convenience assets" generate fiscal seigniorage revenues that, given appropriate fiscal and monetary policies, back the union's price level, much like primary surpluses and monetary seigniorage do. An exogenous drop in the private-sector demand for convenience assets reduces seigniorage revenues and raises the price level. It also results in a wealth transfer across countries owing to the heterogeneity in convenience yields.

Keywords: Currency union; Fiscal theory of the price level; Convenience yield; Cross-country heterogeneity (search for similar items in EconPapers)
JEL-codes: E31 E63 F45 (search for similar items in EconPapers)
Date: 2026-01
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