Maximizing Seignorage Revenue During Temporary Suspensions of Convertibility: A Note

19 Pages Posted: 18 Jun 2004 Last revised: 16 Jul 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Angela Redish

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1992

Abstract

This note extends the theory of the revenue maximizing rate of monetary growth to the case of a temporary suspension of convertibility. It also suggests a methodology for the interpretation of monetary behavior during historical periods of inconvertibility. First we analyze the case of a government with a monopoly over currency issue. The government maximizes seignorage revenue by generating an inflation, but the terminal condition of a return to convertibility implies that the price level must drop at the point of suspension of convertibility, so that there is no discontinuity at the date of resumption. We then consider the behavior of a private banking system whose monetary liabilities are temporarily inconvertible. The model is then used to interpret monetary behaviour during the suspension of convertibility by U.S. banks in 1837/8.

Suggested Citation

Bordo, Michael D. and Redish, Angela, Maximizing Seignorage Revenue During Temporary Suspensions of Convertibility: A Note (March 1992). NBER Working Paper No. w4024. Available at SSRN: https://ssrn.com/abstract=226891

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Angela Redish

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-2748 (Phone)
604-822-5915 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
29
Abstract Views
580
PlumX Metrics