Banknotes and Economic Growth

29 Pages Posted: 3 Aug 2012

See all articles by William D. Lastrapes

William D. Lastrapes

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

George Selgin

The Cato Institute; University of Georgia

Multiple version iconThere are 2 versions of this paper

Date Written: September 2012

Abstract

Modern paper currency contributes little to productive investment. This shortcoming is not inherent to paper money. It stems from the fact that currency today is monopolistically supplied by public monetary authorities that are poor intermediaries. Commercial banknotes may, in contrast, support efficient intermediation, just as private bank deposits do. We demonstrate this advantage in an endogenous growth model, and use the model to simulate, for a sample of developing countries, steady‐state growth‐rate gains from various degrees of banknote deregulation. The simulated gains are generally large compared with those from conventional forms of financial liberalization.

Suggested Citation

Lastrapes, William D. and Selgin, George, Banknotes and Economic Growth (September 2012). Scottish Journal of Political Economy, Vol. 59, Issue 4, pp. 390-418, 2012. Available at SSRN: https://ssrn.com/abstract=2123003 or http://dx.doi.org/10.1111/j.1467-9485.2012.00586.x

William D. Lastrapes (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Terry College of Business
Athens, GA 30602-6254
United States
706-542-3569 (Phone)
706-542-3376 (Fax)

George Selgin

The Cato Institute ( email )

1000 Massachusetts Ave. NW
Washington, DC 20001
United States

HOME PAGE: http://www.cato.org/centers/center-monetary-financial-alternatives

University of Georgia ( email )

Athens, GA 30602-6254
United States
706-542-2734 (Phone)
706-542-3376 (Fax)

HOME PAGE: http://www.terry.uga.edu/~selgin/

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