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Credible Currency: A Constitutional Perspective

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  • George Selgin
  • Lawrence White

Abstract

By contrast to private banks, public monetary authorities – central banks and currency boards – have limited credibility in making redemption or fixed-exchange-rate commitments. Their sovereign immunity obviates legal penalties for devaluing, and their monopoly status weakens reputational penalties. The softness of central bank promises invites speculative attack and currency crises. Privatization and decentralization of exchange-rate commitments provides a more credible currency by making redemption commitments legally enforceable and reputable. This contrast sheds light on (1) the breakdown of the classical gold standard and (2) the costs and benefits of dollarization. Copyright Springer Science+Business Media, Inc. 2005

Suggested Citation

  • George Selgin & Lawrence White, 2005. "Credible Currency: A Constitutional Perspective," Constitutional Political Economy, Springer, vol. 16(1), pages 71-83, January.
    • Handle: RePEc:kap:copoec:v:16:y:2005:i:1:p:71-83
    DOI: 10.1007/s10602-005-5853-z
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    References listed on IDEAS

    as
    1. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
    2. Ricardo Hausmann & Michael Gavin & Carmen Pagés & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications (Working Papers) 4128, Inter-American Development Bank.
    3. Velasco, A. & Chang, R., 1998. "The Asian Liquidity Crisis," Working Papers 98-27, C.V. Starr Center for Applied Economics, New York University.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Respuestas a diez objeciones al patrón oro
      by Adrián Ravier in Punto de Vista Economico on 2012-05-23 18:06:50

    Citations

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    Cited by:

    1. Maurizio Mistri, 2007. "Institutional changes and shifting ideas: a constitutional analysis of the Euro," Constitutional Political Economy, Springer, vol. 18(2), pages 107-126, June.
    2. Cutsinger, Bryan P., 2020. "On the feasibility of returning to the gold standard," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 88-97.
    3. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.
    4. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.
    5. Paniagua Pablo, 2016. "The Stability Properties of Monetary Constitutions," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 22(2), pages 113-138, December.
    6. Leigh A. Gardner, 2014. "The rise and fall of sterling in Liberia, 1847–1943," Economic History Review, Economic History Society, vol. 67(4), pages 1089-1112, November.
    7. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    8. George Selgin, 2015. "Law, Legislation, and the Gold Standard," Cato Journal, Cato Journal, Cato Institute, vol. 35(2), pages 251-272, Spring/Su.

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