The Fiat Standard of the Euro Area: Does the Cost-Saving Argument still hold Water Today?

37 Pages Posted:

See all articles by Karl-Friedrich Israel

Karl-Friedrich Israel

Leipzig University - Institute for Economic Policy

Date Written: October 25, 2018

Abstract

In this paper the operating expenses of the central bank system of the euro area are analyzed and put into perspective. Contrary to the classical cost-saving argument for central banks and fiat money, our case study shows that the eurosystem operates under relatively high expenses. Its overall operating expenses are about three times as high as White's estimate of the annual costs of an alternative system based on a gold standard with fractional reserves. Moreover, the eurosystem's overall operating expenses are very likely to be higher than the proportion of the costs for global gold production that corresponds to the eurozone's share in world GDP. This is of particular interest, because global gold production has considerably expanded even after the transition to a fiat standard in the 1970s and continues to divert real resources from other productive uses in the economy.

Keywords: central bank, operating expenses, euro area, fiat standard, gold standard

JEL Classification: E02, E50, E58, E59

Suggested Citation

Israel, Karl-Friedrich, The Fiat Standard of the Euro Area: Does the Cost-Saving Argument still hold Water Today? (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=

Karl-Friedrich Israel (Contact Author)

Leipzig University - Institute for Economic Policy ( email )

Grimmaische Str. 12
D-04109 Leipzig, 04109
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
19
Abstract Views
61
PlumX Metrics