Abstract

CEREZO, Sergio M.  and  TICONA, Ulises A.. Bolivianization, Demand for Money and Seigniorage in Bolivia: Empirical evidence and a theoretical proposal. rlde [online]. 2017, n.27, pp.7-37. ISSN 2074-4706.

In recent years, Bolivia has experienced a significant increase in the stock of money which, along with subdued inflation, have led to higher levels of seigniorage. In fact, during the period 2002-2015 the average ratio of seigniorage was about 2% of GDP (1.6% attributable to increases in the real money balances of private agents and 0.4% attributable to the inflation tax). In this sense, the present paper examines the factors that explain this increase in seigniorage without originating higher rates of inflation and analyzes whether Bolivia can maintain high levels of seigniorage in the future. For this purpose, a Cagan function of money demand is estimated taking into account intrinsic features of the Bolivian economy The results show that income, deposit interest rates and financial dedollarization would have contributed greatly to the increase in money demand of national currency especially since 2006. On the other hand, the boost of dedollarization to both, the demand for money and seignorage, is weak because it is near its upper limit. Finally the paper presents a theoretical proposal, which unlike a Laffer - Bailey curve that relates inflation to seigniorage, proposes a relationship between dedollarization and seigniorage.

Keywords : Bolivianization; demand for money; seigniorage.

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