Premium
The Relationship Between Currency Competition and Inflation
Author(s) -
MafiKreft Elham
Publication year - 2003
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1046/j.0023-5962.2003.00234.x
Subject(s) - currency , inflation (cosmology) , competition (biology) , citation , economics , library science , monetary economics , computer science , biology , ecology , physics , theoretical physics
This paper investigates whether barriers to currency competition placed on suppliers of money are associated with higher rates of inflation. First, I look at historical data on average annual inflation rates for nine OECD countries that experienced periods of free banking. Then I compare these countries' average inflation rates during free banking to their averages under central banking. Second, using a cross-section of OECD countries, I find that countries allowing citizens to legally hold foreign currency tend to have lower average rates of inflation. My results show that allowing competition among currency issuers heightens the incentives for monetary issuers to pursue lower inflation rates.