Seignorage in High Indebted Developing Countries

M.F. McPherson

Equity and Growth through Economic Research from EAGER Publication/BHM

Abstract: 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.

Keywords: DEBT; MANAGEMENT; DEVELOPING COUNTRIES; INFLATION; EXCHANGE RATE (search for similar items in EconPapers)
JEL-codes: E50 H60 H63 O55 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:fth:eagerd:58

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