The Fiscal Implications of Parallel Currencies

Saleem Bahaj and Ricardo Reis

No 21925, CEPR Discussion Papers from Centre for Economic Policy Research

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.

JEL-codes: E51 F31 F33 (search for similar items in EconPapers)
Date: 2026-09
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