European Financial Integration and Revenue from Seignorage: The Case of Italy

International Monetary Fund

No 1989/041, IMF Working Papers from International Monetary Fund

Abstract: Financial integration is likely to entail EEC-wide convergence in both inflation rates and bank reserve requirements, thereby lowering some governments’ seignorage revenues. These revenue losses, however, may be offset by concomitant effects on exchange rate expectations and on interest rates on publicly held government debt. In Italy, the high stock of such debt in relation to base money implies that, to offset the loss of seignorage, it will take only about a 1/2-percentage-point decline in real interest rates. A decline of this magnitude seems feasible, provided that there is credible action to place the public debt on a sustainable path.

Keywords: WP; rate of inflation; treasury bill; interest rate effect; exchange rate; nominal GDP; real rate of interest; interest bill; seignorage revenue; high-powered money; reserve ratio; bank reserves; rate of return; net interest bill; overdraft facility; central bank debt; Real interest rates; Inflation; Financial integration; Government securities; Europe (search for similar items in EconPapers)
Pages: 36
Date: 1989-01-01
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