Preprint Article Version 1 This version is not peer-reviewed

Commercial Bank Money, Seigniorage, and the Macroeconomy

Version 1 : Received: 25 August 2018 / Approved: 29 August 2018 / Online: 29 August 2018 (16:02:56 CEST)

How to cite: Bossone, B. Commercial Bank Money, Seigniorage, and the Macroeconomy. Preprints 2018, 2018080506 (doi: 10.20944/preprints201808.0506.v1). Bossone, B. Commercial Bank Money, Seigniorage, and the Macroeconomy. Preprints 2018, 2018080506 (doi: 10.20944/preprints201808.0506.v1).

Abstract

This article evaluates the macroeconomic implications of commercial bank seigniorage, which emerges from the commercial banks’ power to create money in a fractional reserves regime. After evaluating the impact on aggregate output of commercial bank money relative to alternative exchange arrangements, the article identifies the determinants of commercial bank seigniorage and analyzes how equilibrium prices are determined in an economy where commercial banks extract seigniorage. The article also identifies the conditions under which commercial banks extract seigniorage, clarifies the relationship between seigniorage from commercial bank money creation and profits from pure financial intermediation, and shows how commercial bank seigniorage changes with different types of interbank payments settlement.

Subject Areas

Commercial banks, Interest rate, Money creation, Monetary circuit of production, Resource distribution, Seigniorage

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