Bank Seigniorage in a Monetary Production Economy - review

This article by Biagio Bossone analyzes the role of commercial banks as money creators in a money-producing economy. In particular, it focuses on the power of banks to extract rent in the form of "seigniorage." The article examines how the relative size of banks in the payment system combines with their ability to determine quantities and prices in the demand deposit market, giving them the power to extract seigniorage from the economy. Furthermore, the article clarifies the distinction between seigniorage arising from money creation by commercial banks and profits arising from pure financial intermediation, and analyzes how seigniorage affects the price level and the distribution of resources in the economy. The article draws economic policy and political economy implications.

Biagio Bossone is senior advisor to international financial organizations and consultant to government agencies and financial companies; member of the Evaluation Unit at Italy’s Presidency of the Council of Ministers. He is also: chairman of Banca Agricola Commerciale (San Marino); president of the Banking Association of San Marino (ABS); and member of the surveillance committee of the Center d'Études pour le Financement du Développement Local, Senegal. He was executive director of the World Bank Group; member of the board of directors of the International Monetary Fund; head of Evaluation Unit at Italy’s Presidency of the Council of Ministers; president of the Central Bank of the Republic of San Marino; and president of ABS; director of the budget and finance, Sicilian Region; director of the International Payments division and deputy head of the International Financial Markets division, Bank of Italy; member of G-10 and EU central bank working groups. He was appointed expert to the High-Level Commission on World Bank Reform (the "Zedillo" Commission). He has been adjoint professor at the Universities of Palermo and Salento and is (co-)author of several studies and publications on economics and finance.