Seignorage and Central Bank Finance

The author of this paper criticizes the broad, cash-flow based concepts of seignorage that were introduced and emphasized by the economic literature of the 1990s (i.e., fiscal seignorage, total seignorage, etc.), which the author argues are ill justified and confusing. On the other hand, the two classical definitions of seignorage ? ie. monetary and opportunity cost seignorage ?are regarded as fully consistent and sufficient for theoretical purposes.The paper discusses the development of the classical concepts of seignorage in the Czech Republic since 1993. It shows that the fast growth of the monetary base in 1993-96 gave way to decline, above all due to reduced minimum reserve requirements. Monetary seignorage thus reached 1.2% of GDP in 1993-99 as a whole. Opportunity cost seignorage reached 1.4% of GDP in the same period. However, it was more than consumed by the central bank?s opportunity costs from holding foreign exchange reserves (associated with the existence of a risk premium on foreign exchange markets) and by the government's banking-sector bailouts.