Selfless Seigniorage

As advanced-country central banks have intensified quantitative easing, developing-country leaders have increasingly voiced concern about the policy’s adverse spillover effects. But the debate is missing one crucial issue: QE has enabled developed economies to collect a massive amount of seigniorage from developing countries.

NEW YORK – As the central banks of major developed economies have intensified quantitative easing (QE, or large-scale purchases of government bonds and other long-term securities), developing-country leaders have increasingly voiced concern about the policy’s adverse impact on their economies’ stability and growth. They cite the dangers of volatile capital inflows, commodity-price fluctuations, and local-currency appreciation, as well as the attendant risks of asset bubbles and inflation.

Developed-country policymakers do not deny these spillover effects. Rather, they contend that QE’s positive externalities – namely, a stronger recovery in developed economies – will ultimately offset them.

But one issue seems to have been neglected by both sides. QE has enabled developed economies to collect a massive amount of international seigniorage (the interest that a central bank earns on the assets that it holds against the currency that it issues, or the annual increment in the monetary base) from developing countries.

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