Doug Henwood dhenwood at
Mon Nov 22 21:14:35 PST 1999

"Dollarization and Seignorage: How Much is at Stake?"


Rutgers University

Department of Economics


University of Pennsylvania

Department of Economics

Document: Available from the SSRN Electronic Paper Collection:

Other Electronic Document Delivery:

SSRN only offers technical support for papers

downloaded from the SSRN Electronic Paper Collection

location. When URLs wrap, you must copy and paste

them into your browser eliminating all spaces.


Email: Mailto:grohe at

Postal: Rutgers University

Department of Economics

75 Hamilton Street

New Brunswick, NJ 08901-1248 USA

Phone: (732)932-2960

Fax: (732)932-7416


Email: Mailto:uribe at

Postal: University of Pennsylvania

Department of Economics

3718 Locust Walk

Philadelphia, PA 19104 USA


When a government decides to dollarize its economy, that is, to

replace the domestic currency with the U.S. dollar, it

automatically ceases to collect the stream of seignorage

revenue, which is instead redirected toward the U.S. government.

A central issue in the debate about dollarization is the

distribution of seignorage between U.S. and the economies that

are considering the adoption of the dollar as the sole legal

tender. A pre-requisite for designing meaningful seignorage

sharing rules is to asses the amount of resources that are at

stake. A common misconception is that the amount of seignorage

income involved is simply equal to the interest income on the

amount of foreign reserves required to exchange the entire

domestic money supply for dollars. This way of measuring the

loss of seignorage income is in general biased for it implicitly

assumes no growth in monetary assets. In this note we show that

this bias can lead to enormous underestimations of the amount of

seignorage revenue lost by governments of countries that


JEL Classification: F41

More information about the lbo-talk mailing list