Central Bank Independence in Transition Economies

1.1.2. Revenue Motive for Monetary Expansion 

Another incentive for the Government to create surprise inflation is a revenue 

motive. Inflation depreciates the real value of money and allow the Government to 

collect seignorage revenue, defined as the amount of real resources bought by issuing 

new base money. The amount of seignorage depends on a tax base which, in this case, 

is formed by voluntary hold money. The amount of these money depends on 

inflationary expectations. Thus the seignorage revenue is higher if the inflation is 

surprise and people cannot optimise their asset holding. Inflation reduces also the 

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