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A Seigniorage Perspective on the Introduction of a Palestinian Currency

Author

Listed:
  • Aire Arnon

    (Bank of Israel)

  • Avia Spivak

    (Bank of Israel)

Abstract

In this paper we found that there are substantial revenues to be gained from the introduction of a Palestinian currency. According to our calculations, it will yield a short-term revenue amounting to more than 22% of the GDP (in the first five years) and around 1.2% annually in the long-run, assuming that the money-multiplier will be equal to 1.5. The revenues will decrease in direct proportion to an increase in the actual money-multiplier. These numbers are based on the assumption that a European inflation rate of 5% per year will prevail. They change considerably with the inflation rate. In a system without a CUB, the temptation of easy revenue may lead to high inflation and instability in the exchange rate, which will create a bad climate for growth. This is what happened to many new nations, including Israel. The adoption of a CUB will allow the Palestinian entity to collect the seigniorage, while maintaining stability. By our assumptions, since stability is essential to the acceptance of the Palestinian money, the seigniorage will be maximized under this arrangement.

Suggested Citation

  • Aire Arnon & Avia Spivak, 1995. "A Seigniorage Perspective on the Introduction of a Palestinian Currency," Bank of Israel Working Papers 1995.04, Bank of Israel.
    • Handle: RePEc:boi:wpaper:1995.04
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    File URL: https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_1995.04.pdf
    File Function: First version, 1995
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    References listed on IDEAS

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    1. Levy, Amnon & Spivak, Avia, 1988. "How does the public perceive an unprecedented rise in inflation: The case of inflationary expectations in Israel," Journal of Macroeconomics, Elsevier, vol. 10(2), pages 273-282.
    2. C Bean, 1992. "Economic and Monetary Union," CEP Discussion Papers dp0086, Centre for Economic Performance, LSE.
    3. Stanley Fischer & Dani Rodrik & Elias Tuma (ed.), 1993. "The Economics of Middle East Peace: Views from the Region," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061538, April.
    4. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    5. Charles R. Bean, 1992. "Economic and Monetary Union in Europe," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 31-52, Fall.
    6. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
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    Cited by:

    1. Arie Arnon & Avia Spivak, 1995. "Monetary Integration Between the Israeli, Jordanian and Palestinian Economies," Bank of Israel Working Papers 1995.11, Bank of Israel.
    2. Arie Arnon & Avia Spivak, 1996. "Monetary integration between the Israeli, Jordanian and Palestinian economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 132(2), pages 259-277, September.

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