Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Does Europe need its own central bank?
- 2 Monetary policy, capital controls and seigniorage in an open economy
- 3 Seigniorage in Europe
- 4 Factor mobility, uncertainty and exchange rate regimes
- 5 Management of a common currency
- 6 The tastes of European central bankers
- 7 The costs and benefits of a European currency
- 8 The monetary unification process in nineteenth-century Germany: relevance and lessons for Europe today
- 9 The establishment of a central bank: Italy in the nineteenth century
- 10 The founding of the Fed and the destabilization of the post-1914 US economy
- 11 Panel discussion on the prospects for a European Central Bank
- Index
3 - Seigniorage in Europe
Published online by Cambridge University Press: 05 February 2012
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Does Europe need its own central bank?
- 2 Monetary policy, capital controls and seigniorage in an open economy
- 3 Seigniorage in Europe
- 4 Factor mobility, uncertainty and exchange rate regimes
- 5 Management of a common currency
- 6 The tastes of European central bankers
- 7 The costs and benefits of a European currency
- 8 The monetary unification process in nineteenth-century Germany: relevance and lessons for Europe today
- 9 The establishment of a central bank: Italy in the nineteenth century
- 10 The founding of the Fed and the destabilization of the post-1914 US economy
- 11 Panel discussion on the prospects for a European Central Bank
- Index
Summary
Introduction
One of the most debated problems in Europe today is the definition of the strategy for achieving monetary integration. The European Monetary System (EMS) was established as an intermediate step toward such unification. The EMS has produced increasing stability in exchange rates, but this success has been facilitated by the existence of widespread capital controls that have discouraged speculative activities. The process of financial liberalization which is now in progress, while certainly beneficial in other respects, could seriously undermine the solidity of the EMS. One of the main reasons for concern is the uneven status of the government finances of the member countries. Exchange rate systems like the EMS impose monetary discipline that may be too tight for countries that are struggling with large public deficits.
The close link between budget decisions and the exchange rate is analysed in Grilli (1988). There it is shown that the financing of government expenditures may be incompatible with a fixed exchange rate and that, historically, this incompatibility has been one of the main causes of exchange rate crises. According to this point of view, inflation is an essential element of an optimal taxation program. Therefore, waiving discretionary power over money supply decisions (as implied by a fixed exchange rate system) without, at the same time, surrendering sovereignty over fiscal policies, may not be a credible arrangement. Similar concerns have been expressed by others, e.g. Dornbusch (1987) and Giavazzi (1987).
- Type
- Chapter
- Information
- A European Central Bank?Perspectives on Monetary Unification after Ten Years of the EMS, pp. 53 - 94Publisher: Cambridge University PressPrint publication year: 1989
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