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Currency substitution and seigniorage-maximizing inflation: the case of Cambodia

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Abstract:

This article contributes a new empirical study on currency substitution in Cambodia. In our analysis, a model of money-in-the-utility function is adopted. The empirical results indicate that the elasticity of substitution between foreign and domestic real currency balances in Cambodia is high. Moreover, the high share of foreign real balances in providing domestic liquidity services in Cambodia is also confirmed by empirical analysis. Given these findings, the effects of the currency substitution on the government ability to gain from seigniorage revenue are also examined. The analysis from simulated results shows that the Cambodian government has little opportunity to gain from seigniorage revenue.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701749035

Affiliations: Graduate School of Economics, Kyoto University, Yoshida-hommachi, Sakyo-ku, Kyoto, 606-8501, Japan

Publication date: June 1, 2010

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