In order to form a more perfect monetary union

Rolnick, Arthur J.; Smith, Bruce; Weber, Warren E.

Journal Article

In order to form a more perfect monetary union

Abstract: Why did states agree to a U.S. Constitution that prohibits them from issuing their own money? This article argues that two common answers to this question?a fear of inflation and a desire to control what money qualifies as legal tender?do not fit the facts. The article proposes a better answer: a desire to form a viable monetary union that both eliminates the variability of exchange rates between various forms of money and avoids the seigniorage problem that otherwise occurs in a fixed exchange rate system. Supporting evidence is offered from three periods of U.S. history: the colonial period (1690?1776), the Revolutionary War (1776?83), and the Confederation period (1783?89). This article is adapted from a chapter prepared for a forthcoming book, Varieties of Monetary Reforms: Lessons and Experiences on the Road to Monetary Union, edited by Pierre Siklos, to be published by Kluwer Academic Publishers.