seigniorage

Money: The Unauthorized Biography

by Felix Martin  · 5 Jun 2013  · 357pp  · 110,017 words

as he spent new money into circulation at essentially no cost—the miraculous power that economists in the Western tradition would later come to call “seigniorage.” Second, it would regulate economic activity by making the primary instrument for the organisation and settlement of trade more or less readily available. The goal

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its feudal issuers. In an age when the imposition of direct taxes remained a logistical and economic challenge for many of them, the levying of seigniorage by the manipulation of the monetary standard represented an invaluable source of revenue. An important feature of the monetary technology of the day made this

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few ways of raising revenue apart from the proceeds of their personal domains: levying direct or indirect taxes was far beyond most feudal administrative capabilities. Seigniorage was therefore a uniquely attractive and uniquely feasible source of income—and medieval sovereigns happily indulged in it. Under normal circumstances, when

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seigniorage was levied only on the gradual increase in the coinage supply demanded by a growing monetary economy, the revenues were relatively modest. But when the

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1299, for example, the total revenues of the French crown amounted to just under £2 million: of this, fully one half had come from the seigniorage profits of the Mint following a debasement and general recoining.20 Two generations later, the recoinage of 1349 generated nearly three-quarters of all revenues

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money—a politically powerful “money interest” beyond the sovereign’s court. The second was the growing addiction of sovereigns to the fiscal miracle of the seigniorage—a miracle which grew in proportion with the increasing use of money. The more activities were monetised, and the more people were drawn into the

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money economy, the larger the tax base on which seigniorage was levied. As sovereigns were to discover, this apparently magical source of fiscal financing did in fact have limits. They were not technical, however, but

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to brainwash his heir. Here was their chance to end the French crown’s fiscal folly, and especially its reliance on the evils of excessive seigniorage. In the course of his war with the English, Jean had tested new extremes in this respect. In 1355, the year before Poitiers, there had

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on his debt service.23 What was needed was to convince the prince that in the emerging era the age-old practice of milking the seigniorage would do more harm than good. The Dauphin was young and hopefully impressionable, but he was no fool. What was required was an advocate—a

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into monetary wealth. It was these people, whom Oresme unblushingly dubbed “the best classes of the community,” who suffered most from the scourge of redistributive seigniorage—and in whose interests the sovereign should manage his money. The sovereign, Oresme pronounced, “is not the lord or owner of the money current in

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point out, this was basically a problem. In the normal course of things, the sole reason for such manipulation was for the sovereign to levy seigniorage from his subjects. “Can any words be too strong,” he asked, “to express how unjust, how detestable it is, especially in a prince, to reduce

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required a more reasonable and predictable monetary system. But as a wily and circumspect pamphleteer, Oresme realised that to campaign for the abolition of the seigniorage altogether—by bringing the tariffed, nominal value of the coinage exactly into line with the market value of the precious metal that it contained—would

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more moderate course. In exchange for the benefit of using the sovereign money, the community should bear both the costs of minting and a modest seigniorage, so that the sovereign could continue to enjoy “a noble and honourable estate, as becomes princely magnificence or royal majesty.”27 Yet Oresme was aware

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that this proposed monetary reform begged a further question. Eliminating—or at least strictly regulating—seigniorage would certainly reduce the sovereign’s room for discretion in the management of money. But if the sovereign’s choice of the level of

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seigniorage was not to determine the quantity of money in circulation, what should? In theory, there was a simple answer to this question. If the standard

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quantity of money. If people wanted coins, they could bring silver to the Mint and have it coined, with only minting costs and a minimal seigniorage tax to pay. The problem was that this laissez-faire solution was unlikely to work in practice, because there was no reason to suppose that

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thought over subsequent centuries. There had to be a means of restraining the sovereign’s inveterate impulse to fund his innate profligacy for free via seigniorage. There needed, that is, to be a rule governing the issuance of money: the standard should not be infinitely flexible. But if such a rule

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—and they knew it. The emerging money interest could hire the best brains in Europe to make the case that the sovereign should restrain his seigniorage and manage his money instead with their interests in mind—and in Oresme they had done just that—but they had no means of forcing

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which there would always be just enough money to satisfy the needs of trade, and in which the sovereign would not take advantage of his seigniorage prerogatives to extract unwarranted revenue. They had tried persuasion, in the guise of Oresme’s ingenious arguments, but that had not worked.8 The alternative

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Tacitus’ account of the Tiberian financial crisis. Above all, there was the sovereigns’ interest in ensuring the continuing priority of their money, and hence their seigniorage. As a result, the new invention of banking was subjected to draconian regulation. When in 1321 the authorities in Venice discovered that merchants were practising

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would sow by agreeing to lend, they would reap a hundredfold in being allowed to create private money with the sovereign’s endorsement. Henceforth, the seigniorage would be shared.18 The worldlier men of the age were well aware that the outwardly technical business of reforming public financial management was in

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supply. Parliament had taken remedial action in 1666 by passing an “Act for the Encouraging of Coinage” which took the unprecedented step of abolishing the seigniorage levy and raising the price paid by the Mint for silver bullion by the same amount in an attempt to bring it back into line

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was that the choice of standard also determines the distribution of wealth and income. This, too, was an old topic in monetary thought, insofar as seigniorage—the ability of monetary policy to redistribute wealth to the sovereign from his subjects—was concerned. But Law realised that in the new world in

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in terms of real goods and services meant the redistribution of wealth and incomes.” “Exactly. And especially, redistribution to the sovereign from his subjects.” “Right. Seigniorage. The story you told was that as the monetary economy grew, so there were more and more subjects interested in the question of the standard

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—since they didn’t want to pay excessive seigniorage to their sovereign. They complained about it a lot. They invented all kinds of clever arguments against it. They hired that French bishop to show

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. Anyway: once bankers had rediscovered the trick of issuing private money, the boot was on the other foot. Now it was the sovereigns and their seigniorage that were under pressure. This was an unstable situation—monetary insurrection, to use your metaphor. But with the foundation of the Bank of England, a

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everyone is least expecting it. You see, up until now, everyone might have been arguing over whether the sovereign should manipulate the standard to raise seigniorage, and whether the bankers should be allowed to issue private money, and so on—but at least they all understood what money was. In terms

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the Spanish and French sovereign currencies were comparatively speaking fairly stable—in the French case, partly as a result of pressure from taxpayers to limit seigniorage. See chapter 3 of Macdonald, 2006, for details. 9. This is a description of how they achieve the transformation at its most generic, and one

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ordinance which specified the silver content of the sterling monetary units—had been 60d an ounce since 1601, except during the period 1604–26, when seigniorage had been half a penny more, and the Mint price therefore 59½d. Meanwhile, the market price of silver had rarely dropped below this, and

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order

by Paul Vigna and Michael J. Casey  · 27 Jan 2015  · 457pp  · 128,838 words

money and power are inseparable. The sovereign’s capacity to issue money afforded one specific benefit: the creation of seigniorage, the ability to profit directly from the issuance of currency. These days, seigniorage arises because of the interest-free loan that a government obtains by printing money on comparatively worthless pieces of

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that fixed schedule, he could arrange the currency-issuance schedule to be consistent over a 130-year period. In monetary-theory terms, the payout is seigniorage, the profit that a currency issuer—be it a sovereign, a monetary authority, or in this case a winning bitcoin miner—derives from the privilege

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is, this cost is borne by the rest of the community, since fresh supply depletes the market value and purchasing power of the existing currency. Seigniorage is unavoidable; someone has to be the first to own newly issued currency. The question is how to make it fair. Some cryptocurrency designers have

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the system’s anonymity, and get higher allotments for themselves. Some have created the coins and sold portions of them to the public—garnering the seigniorage for themselves, much like a government.* Often this strategy requires some elaborate maneuvers to keep the faith with the community, occasionally employing a “proof of

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transactions along the way and keeping the blockchain up-to-date. This is the basis upon which bitcoin’s protocol decides who should earn the seigniorage, a model founded on the idea that in return for this privilege the recipients must invest resources—equipment, electricity—and that their computer must do

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. This reminds us that while bitcoin is far more efficient as a payment system than the bank-centric, centralized system, it’s not free. Both seigniorage and transaction fees represent a transfer of value to those running the network. Still, in the grand scheme of things, these costs are far lower

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expectation is that those who issue a cryptocurrency won’t exploit the unique power of that role, that they won’t engage in the same seigniorage practices as traditional central banks and make money for themselves simply by making currency.) Ripple’s management responded by accusing Powell of lying and sent

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a “pump and dump” scam, it’s difficult to dispel a sense of conflicted interests whenever new cryptocurrencies are created. It gets back to the seigniorage problem we discussed in chapter 5 and which Nakamoto chose to tackle through the competition for bitcoins. Jed McCaleb would use an entirely new project

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minted cryptocurrencies in an arm’s-length way—in particular, the challenges that founders face in assuring their investors that they are not granting unwarranted seigniorage to themselves or their business partners. MaidSafe is founded on the notion that many people, including most home-computer users, are “long” on storage—they

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power to print currency as it sees fit, has arguably been the most powerful weapon in the nation-state’s arsenal. More than just generating seigniorage—the seductive idea that every dollar printed is an interest-free loan flowing from the people to the state—controlling the nation’s money has

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, Joshua Schmidt, Eric Schopenhauer, Arthur Schumer, Chuck Sclavos, Stratton scrypt Sean’s Outpost SecondMarket Secure Electronic Transactions (SET) Securities and Exchange Commission (SEC) securities contracts seigniorage Selkis, Ryan Serrano, Sebastian sharing economy Shasky Calvery, Jennifer Shavers, Trendon Shiller, Robert Shrem, Charlie Silbert, Barry Silent Circle Silicon Valley accelerator programs Silicon Valley

The Curse of Cash

by Kenneth S Rogoff  · 29 Aug 2016  · 361pp  · 97,787 words

Chapter 4: Holdings of Currency in the Domestic, Legal, Tax-Paying Economy 48 Chapter 5: Currency Demand in the Underground Economy 58 Chapter 6: Seigniorage 80 Chapter 7: A Plan for Phasing Out Most Paper Currency 92 PART II: Negative Interest Rates Chapter 8: The Cost of the Zero Bound

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and crime. Next we turn to examining just how much central banks and treasuries receive directly from the business of printing paper currency. CHAPTER 6 Seigniorage Governments enjoy considerable profits from their monopoly on paper currency, which costs next to nothing to print and yet can be spent at face value

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total profit from printing money—including both the inflation tax and the monopoly rents accrued by accommodating greater real demand—is sometimes referred to as “seigniorage,” a term that derives from the old French word seigneur. The word’s origins trace to the days when coins were made of gold,

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2 but even before policy interest rates collapsed to zero, the US take was still averaging 0.25% of GDP. (This calculation does not include seigniorage from electronic bank reserves, which of course should increase after paper currency is phased out. The government’s profit will depend on a variety of

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the paper currency business. The calculations above for the euro and the dollar were based on using the simple and intuitive concept of “monetary seigniorage.”3 This concept asks to what extent the government is able to spend beyond its means each year by printing money and spending it. This

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is certainly how the monarchs of the Middle Ages thought about seigniorage, and for many purposes it is the main thing to focus on here. Going back to the case of the United States, if inflation

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the Middle Ages, even if it amounts to much the same thing. Instead of having the government print money and buy things directly, modern-day seigniorage is a three-stage process. In stage one, the government spends beyond its means (its tax revenues) and issues interest-bearing debt to cover

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marketable government debt was a more “normal” 4% (corresponding to a 2% inflation rate and 2% growth rate in real income), then opportunity cost seigniorage would be $56 billion in nominal terms (though in real terms, adjusting for inflation, the cost of the interest-bearing debt would be only 2

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$28 billion). Figure 6.1 shows average revenues from printing paper currency as a percentage of GDP for a range of countries, using the monetary seigniorage approach. Switzerland and Singapore, at 0.60% and 0.62%, respectively, have average revenues similar to the Eurozone’s 0.55%. Canada and the

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on a large monetary base, thanks to a strong tradition of using cash in a very corrupt system. Even at today’s elevated levels, the seigniorage-to-GDP ratios in Figure 6.1 are far below the corresponding estimates reported for tax evasion in chapter 5. For the United States, estimated

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higher if state and local taxes are included. As noted in chapter 5, tax evasion is likely even more significant in Europe. Figure 6.1: Seigniorage revenue/GDP, 2006–2015 average. Source: IMF, International Financial Statistics; and Central bank sources. Norway data are for 2006–2014. Of particular note is

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CURRENCY If a government fully phases out paper currency, there is a sense in which it will have to forgo both monetary seigniorage and opportunity cost seigniorage. Obviously, it forgoes monetary seigniorage, because it won’t be printing fresh currency anymore. But at the same time, it will have to issue ordinary interest

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calculation is likely an overestimate. If average real interest rates paid on government debt ever rose to 2% or 3% (from near zero today), monetary seigniorage would likely drop considerably, perhaps even back to pre-crisis levels of $30 billion a year. They could even be negative for an extended period

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misdeeds by making it hard for them to turn in cash, but then the underground might become far leerier about holding local cash, driving future seigniorage profits down. So, in normal currency conversions, governments often make it relatively easy to turn in cash. If a country is really phasing out

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buy back currency still does not overturn the fact that the potential gains from reducing tax evasion should at least offset the forgone costs of seigniorage, even in the extreme case where all currency is phased out and the government buys back all dirty money at par. For the United

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important if nominal interest rates would otherwise remain very low for an extended period. Yet this is exactly the scenario where cash demand and monetary seigniorage are most likely to be at the high end of our estimates. We are also abstracting from potentially higher revenues on electronic reserves, which should

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rise in a less-cash world. For Europe, thanks to its large underground economies, particularly in the periphery countries, recent monetary seigniorage rates are higher (roughly 0.55% of GDP versus 0.4% in the United States), and the currency supply is larger as a share of

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demand for their notes. The calculus of phasing out paper currency is even more compelling for other advanced economies whose currencies are mainly used domestically. Seigniorage rates for Canada and the United Kingdom are less than half those of the United States, and roughly a third those of the Eurozone. Hence

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the opportunity cost of retreating from the paper currency business is correspondingly less. For Japan, recent monetary seigniorage is only 0.4% of GDP, but the money supply is a far larger share of GDP, close to 19% (see figure 3.4).

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rise in real interest rates would almost certainly lead in the long term to a massive shrinkage in currency demand. THE POLITICAL ECONOMY IMPORTANCE OF SEIGNIORAGE The development of much greater central bank independence in many countries over the past three decades has been perhaps the single most transformative change in

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punching bag in a currency phaseout, as its profits will sharply decrease. Aside from being a modest but nice source of income for the government, seigniorage revenue has an important political economy function in supporting central bank independence. It turns the central bank into a huge profit center that earns far

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are now ready to turn to the practical question of how it might be (mostly) phased out. This might seem premature, given that, except for seigniorage revenues, we have only cursorily discussed paper currency’s many virtues: preserving privacy, dealing with blackouts and other emergencies, security from cybercrime, providing a medium

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price distortions that arise in a world of staggered price- and wage-setting, and it also would reduce the distortions created by the tax system. Seigniorage and Central Bank Independence This topic has been covered in chapter 6. After the transition, steps would need to be taken to ensure that central

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notes was penny-wise and pound-foolish; the likely benefits from marginally increased tax receipts and marginal reductions in crime almost certainly outweigh the lost seigniorage revenues from printing paper currency. This case appears to be even stronger today. New technologies have now made even small-denomination notes increasingly less essential

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from the case where the Treasury Department just issues short-term debt instead of long-term debt. After all, as noted in chapter 6 on seigniorage, the government owns the central bank—lock, stock, and barrel. Put a different way, when Milton Friedman advanced his famous k-percent rule for

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paper currency at 0.97, or it can just keep on pushing down the exchange rate for paper currency as a way to collect more seigniorage tax. However, it would certainly be convenient in terms of the payment system to bring the exchange rate back to one, especially if negative

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for perhaps as much as half of the United States’ profits from selling paper currency. I have also argued, however, that the entire amount of seigniorage revenue loss is likely canceled out by indirect benefits due to higher tax revenues from the underground economy, not to mention all the ancillary benefits

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broadly speaking, the case for phasing out paper currency is actually even stronger than for the United States. For Japan, the question of loss of seigniorage from the international criminal mafia is not terribly relevant, as the yen is little used outside Japan. Indeed, Japan should be considered a prime candidate

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a government-controlled “Bencoin” (after Benjamin Franklin, who now adorns the US $100 bill). It is not because modern-day governments are so worried about seigniorage revenues from currency; at least that should not be their main concern. The real issues involve the ability to use monetary policy to (1) stabilize

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with strong legal and fiscal institutions is uniquely well poised to control. If the US government ever decides to oversee a Bencoin, it can use seigniorage profits to help defray costs of maintaining the system, and it can use tax revenues to ensure that the system never becomes insolvent. These are

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62 on clipping and p. 64 on Newton’s milled edges. 12. Fischer, Sahay, and Végh (2002). 13. As Rolnick, Velde, and Weber (1996) demonstrate, seigniorage revenues typically rose significantly around debasement periods. 14. Ferguson (2008). 15. This point is also emphasized by Davies (2002). 16. Tullock (1957). 17. See Morse

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and 22% for local taxes. 10. The point that even a moderate reduction in tax evasion associated with reducing cash usage can fully offset lost seigniorage costs is highlighted by Rogoff (1998a). 11. It should be noted that UK Treasury reports a tax gap figure of only 6.4% of

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61. See, for example, Orji et al. (2012) on parasitic infestations of both paper and polymer plastic currency in Anamber State of Nigeria. CHAPTER 6: SEIGNIORAGE 1. Federal Reserve Board FAQs, “How much does it cost to produce currency and coin,” available at http://www.federalreserve.gov/faqs/currency_12771.htm

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the Federal Reserve may find itself needing to buy back dollars to prevent inflation. 3. Neumann (1992); for problems with the opportunity-cost definition of seigniorage, see Schmitt-Grohe and Uribe (1999). 4. US Treasury Direct, “Interest Rates and Prices,” available at https://www.treasurydirect.gov/govt/rates/pd/avg/

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Interest Rates.” Journal of International Money and Finance 32(1): 941–967. Boeschoten, W. C., and G. E. Hebbink. 1996. “Electronic Money, Currency Demand and Seigniorage Loss in the G10 Countries.” De Nederlandsche Bank Staff Reports 1. Amsterdam. Bordo, Michael D. 2008. “The History of Monetary Policy.” In New Palgrave Dictionary

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Great Inflation” (December). Columbia University, New York. Naritomi, Joana. 2015. “Consumers as Tax Auditors” (April). Mimeo, London School of Economics. Neumann, Manfred J. M. 1992. “Seigniorage in the United States: How Much Does the U.S. Government Make from Money Production?” Federal Reserve Bank of St Louis Review 74 (2): 29

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20; negative interest rates as dangerous in the hands of, 182–87; private currencies, appropriation of, 16; profits from printing money, 80–81 (see also seigniorage); unit of account, reasons for controlling, 209–10 Greece: coinage in ancient, 17–18; currency/GDP ratio, 1995, 46; restrictions on the use of cash

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, 64; seigniorage revenues from currency, 85; unauthorized immigrants, 75; underground economy, estimated size of, 62–63 Greenspan, Alan, 176–77 gross domestic product, 235n3 Gutenberg, Johannes, 22

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, 82 interest-paying anonymous bearer bonds, 233n6 interest rates: central bank cuts in response to recent crises, 131–32; financial stability and, 177; monetary cost seigniorage and, 87; negative (see negative interest rates); New York Federal Reserve discount rates, 1929–1939, 128–29; nominal and real, 121, 243n1; nominal policy

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for the United States, Eurozone, and United Kingdom, 2000–2015, 130; opportunity cost seigniorage and, 82–83; on paper currency, Gesell’s proposal for, 163–67; quantitative easing and, 137–38 (see also quantitative easing); United Kingdom, 1930–present

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, 7 Italy: cash used for different kinds of purchases, percentage of, 55–56; currency/GDP ratio, 1995, 46; restrictions on the use of cash, 64; seigniorage revenues from currency, 85; underground economy, estimated size of, 62–63 Itami, Juzo, 236n8 Itskhoki, Oleg, 250n18 Jackson, Andrew (US president), 192 Japan: cash

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1953–2015, 35; currency per capita, 37, 40; double-digit inflation, 183; interest rates near the zero bound, 131; large-denomination notes, 31; loss of seigniorage as nonissue, 203; negative interest rates by the central bank, 123; negative interest rates in, 5; paper currency phaseout, costs and benefits of, 89–90

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bank independence; fixed-money supply rule; gold standard; Taylor rule); the zero bound constraint and, 123–24, 227–30 (see also zero bound constraint) monetary seigniorage, 82, 86–87 money illusion, 182–83, 187 money laundering, 4, 68–69, 76–77; of large-denomination euro notes, 201; Serious Organised Crime

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–37; discount rate cuts in response to recent crises, 132; interest rates near the zero bound, 131 opportunity cost of holding currency, 80 opportunity cost seigniorage, 82–83, 87 Otani, Akira, 235n6 Palmstruch, Johan, 25 Panama, 72 paper currency, advantages of, 21; anonymity, 7, 67, 167, 226, 254n7; benefits accruing

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to government, 80–81, 85–86, 217 (see also seigniorage); central bank independence, concerns regarding, 90–91, 106; as “liquid freedom,” 6–7; paying for marijuana in Colorado, 112; in person-to-person transactions, 102

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paper currency, concerns regarding, 7, 94, 100, 102; terrorism and compromises of, 77; threats to, 7, 101 profit from printing money, 81–82. See also seigniorage profits from monopoly on paper currency, 217 proxy notes, 22 public health risks, 78–79 Putin, Vladimir (president, Russia), 72 quantitative easing, 123–24, 132

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239n12, 239n16 Schwartz, Anna, 188 Secret Service: foreign holdings of currency, estimate of, 44–45; founding of to fight counterfeiting, 77 security concerns, 111–14 seigniorage, 80–81; cost of substituting interest-bearing debt for paper currency, 86–90; measures of, 81–85; political economy importance of, central bank independence and

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of currency, estimating, 42–45; gold standard, post–World War I adjustments to, 29; the government’s profit from printing money, 81–82 (see also seigniorage); illegal drug market, estimated size of, 69; inflationary periods in, 27–28; Kleptocracy Asset Recovery Initiative, 72; large-denomination notes, 3, 31; negative interest

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed

by Andrew Jackson (economist) and Ben Dyson (economist)  · 15 Nov 2012  · 363pp  · 107,817 words

key differences between US coins and UK notes The post-reform process for issuing electronic money Ensuring that electronic money cannot be forged Reclaiming the seigniorage on notes & electronic money Modernising the note issuance An alternative accounting treatment Balance sheets: alternative treatment (with money as a liablity of the Bank of

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shrinking of the money supply, usually leading to recession and making it difficult to continue reducing debt. The state currently earns a profit, known as seigniorage, from the creation of bank notes. However, because it has left the creation of electronic money in the hands of the banking sector, it is

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the banks that earn a form of seigniorage on 97% of the money supply. This is a significant and hidden subsidy to the banking sector, and the loss of this

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seigniorage requires that higher taxes are levied on the population. The instability caused by the monetary system harms the environment. The burden of servicing an inflated

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, with coins manufactured by the Royal Mint, and notes printed by specialist printer De La Rue. The profits from the creation of cash (known as seigniorage) go directly to the government. Today, cash makes up less than 3% of the total money supply. Central bank reserves: Central bank reserves are a

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very difficult for the public to significantly pay down private debt without also creating a recession. 5.3 Public debt, higher taxes & fewer public services Seigniorage is the name given to the ‘profit’ that is derived by the government as a result of its ability to create money, in the form

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of printing notes. However unlike coins, bank notes are not assets of the Treasury, but liabilities of the Bank of England. As a result, the seigniorage the Treasury receives from notes is not the face value of the notes minus the costs of printing. Instead, the

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seigniorage comes from the fact that unlike the other liabilities of the Bank of England, bank notes do not pay any interest (reserves, for example, pay

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neutral for the Bank (see Box 2.E). However, bank notes do not pay interest, and so the Bank of England saves the interest payable. Seigniorage is therefore the quantity of notes in circulation times the interest rate paid on reserves (currently the policy rate). Between 2000 and 2009, this came

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notes, and the purchase of government bonds through the creation of central bank reserves through the Quantitative Easing scheme. In effect, this £313 billion is seigniorage which has been earned from the creation of money, but which has only been recognised as a result of the fact that this reform does

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result of removing money from both banks and the central bank’s balance sheet. This increase in equity is in effect a reclaiming of the seigniorage revenue from the banking sector to be repaid to the government as the commercial banks’ assets mature, from where it will be spent back into

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via any of the mechanisms outlined in Chapter 7, giving the government an additional £1,041 billion in what is essentially seigniorage revenue over a period of around 20 years. This seigniorage revenue is non-inflationary, as it does not increase the money supply; it is simply the recycling of loan repayments

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the creation of coins,1 which is the difference between the cost of manufacture and the face value, is known as seigniorage, as described in the US Mint’s annual report: “Seigniorage equals the face value of newly minted coins less the cost of production (which includes the cost of metal, manufacturing

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, and transportation). Seigniorage adds to the government’s cash balance, but unlike the payment of taxes or other receipts, it does not involve a transfer of financial assets

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increased in any way by banks. Banks would only be able to transfer money from one account to another. Reclaiming seigniorage on notes & electronic money Post-reform, the state will earn the seigniorage on the creation of electronic money. The cost of production of electronic money is practically zero, meaning that the

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seigniorage is effectively 100% of the face value. Strictly the only costs of the production of electronic money would be paying an official at the Bank

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Central Government Account, plus a couple of other officials (probably including the Governor) to validate the process and enter necessary passwords. This reform reclaims the seigniorage on the creation of money from commercial banks. Within the current system, the commercial banks do not earn the full face value of the money

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a profit of its Issue Department’s balance sheet and returns 100% of this profit back to the government. So within the current system, the seigniorage on bank notes is not the difference between cost of production and the face value, but the interest that is earned on the bonds that

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of extra physical cash into the economy (for example, in the run up to the Christmas shopping period) does not alter the overall money supply. Seigniorage will be earned at the point when electronic money is created. Coins and notes become, in effect, physical portable versions of the electronic money, and

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so no seigniorage will be earned at the point where electronic currency is swapped for physical cash. An alternative accounting treatment The accounting treatment outlined in this book

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cent coins in the US, can at times cost more to produce than the actual face value, and so have negative seigniorage. However, this is always offset by the positive seigniorage on larger value coins. BIBLIOGRAPHY Ackermann, J. (2010). IIF Calls on Group of 20 to Promote Multilateral Coordination in Addressing Key

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Colonial America, a New Test of Competing Theories. Journal of Political Economy, (pp. 143-161). McIndoe, T. (2009, July 31st). Hyperinflation in Zimbabwe: Money Demand, Seigniorage and Aid Shocks. IIIS discussion paper No. 293. Institute for International Integration Studies. Michener, M. (2010). Money in the American Colonies. Economic History Association. Retrieved

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives)

by David Birch  · 14 Jun 2017  · 275pp  · 84,980 words

the needs of the mainly rural population. The main object of the monetary policy of such a ruler was to raise revenue, whether honestly by seigniorage or dishonestly by debasement. Although he might be constrained in some ways, the deeds of trade or the benefits of stable prices would not concern

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history, he mistakenly thought that the laws of supply and demand could be suspended in the case of money. Therefore, he abused the prerogative of ‘seigniorage’. Seigniorage is, essentially, the profit that accrues to the issuer of money (a £10 note does not cost £10 to make!). We’ll discuss it further

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per cent of the value of notes outstanding, but only at weekends! Seriously. So during the week they can lend the money out and earn seigniorage. The Scottish banks currently earn good money this way so any change would lose Scottish banks some of the £65 million they now earn in

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interest and ‘seigniorage’ (income from selling their notes to other banks). I have a particular interest in the history of Scottish banks because of the lessons from their

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of people not paying tax and simple calculations will show that the tax gap that can be attributed to cash is vastly greater than the seigniorage earned by the Bank on the note issue. Cash makes the government (i.e. us) considerably worse off. The cash gap Goodhart and Ashworth refer

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by David Keohane in a piece for FT Alphaville (Keohane 2015). I have used his categorization here, setting out the five categories of conservatism, demographics, seigniorage, security and privacy and exploring each of them in turn. Conservatism Keohane says that abolishing currency will constitute a noticeable change to many people’s

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) so that we can provide better alternatives to cash for people who live in the margins. They deserve better than cash. Seigniorage Cashlessness would mean central banks and governments losing seigniorage revenue. This is true, and the amounts of money involved could be non-trivial unless there was offsetting through a significant

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detail in Part III. For instance, required reserves that pay less than the interest rate on non-monetary financial instruments would be a source of seigniorage, and if excess reserves have some material non-pecuniary convenience yield, the central bank could even make profits on excess reserves that it held. The

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use of high-value banknotes for illegal activities, it is interesting to note (see table 3) that the United States earns far more in the seigniorage on its $100 bill than other countries earn from their highest-value note because such a high proportion of US currency is held in stashes

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and hoards outside of the country. Seigniorage from large notes. (Source: Sands (2016).) Country Biggest banknote Seigniorage ($ billion) % GDP (basis points) UK £50 00.1 01 Eurozone €500 01.9 02 US $100 23.6 14 Japan

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: auditable. Getting rid of notes and coins and replacing them with electronic payments has implications for retailers beyond the basic cost savings of cash handling. Seigniorage loss It seems to me that there is something a little wrong in charging central banks with maintaining efficient, effective and stable payment systems when

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non-interest-bearing central bank liabilities, and their replacement would lead to a corresponding decline in asset holdings and interest earned on those assets (the seigniorage) as commercial banks would take the ‘float’ from the central bank. The Bank for International Settlements has calculated that the Bank of England would lose

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half of its seigniorage profit even if electronic money only replaced coins and low-value notes. The picture in the United States is different, but the situation there is

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this is a stealth tax on the people who use cash. But it’s significant government revenue. If you look at the United Kingdom, the seigniorage income to the Treasury peaked at £2.4 billion just before the financial crisis. I suppose it might be fairly argued that it’s a

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falls largely on drug dealers and money launderers, but it also falls on the poor: a matter that deserves more consideration. In the current year seigniorage will be in the region of only £500 million or so. You can see the problem with this not being zero, though: if alternatives to

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a potential problem, however, from the government’s point of view. If M-Pesa keeps growing and M0 keeps shrinking, this deprives the state of seigniorage revenue. This has indeed happened, and the Kenyan government decided to compensate with a special tax on mobile money operators (a 10 per cent duty

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(Buiter 2009)) said that we should: Abolish currency. This is easy and would have many other benefits. The main drawbacks would be the loss of seigniorage income to the central bank... Advanced industrial countries can move to electronic and bank-account-based means of payment and media of exchange without like

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funds from foreign banks into sterling digital cash, and that could in turn push up exchange rates. To recapture a portion of seigniorage. As discussed earlier, I think that the seigniorage argument is not terribly persuasive one way or the other. It is plausible, though, that the Bank of England might roughly

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double its seigniorage revenue if most people switch most of their spending from bank accounts to digital cash. To create alternative finance. Separating the creation of money from

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to Uncle Sam. By replacing these with an electronic currency – or I suppose, more strictly speaking, an electronic currency board – the BCE can reclaim the seigniorage for itself. All well and good, and the ability to transact electronically will also be of great benefit to the country’s citizens. If the

Money Free and Unfree

by George A. Selgin  · 14 Jun 2017  · 454pp  · 134,482 words

have come to supply currency, and to restrict the private supply of currency and deposits, not to remedy market failures, but to provide themselves with seigniorage and loans on favorable terms. Government currency monopolies and bank regulations can thus be understood as part of the tax system. The “strong revealed preference

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of developing countries today have recognized that policies of “financial repression” aim at fostering “financial institutions and financial instruments from which government can expropriate significant seigniorage” (Fry 1988: 14; Giovanni and de Melo 1993). We go further in arguing that fiscal forces have typically shaped the industrial organization of money production

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(or the associated price inflation rate) as the government’s choice variable, taking monetary institutions as given. The focus lies on the rate that maximizes seigniorage, or alternatively minimizes the deadweight burden of taxation subject to a revenue constraint. In contrast, we inquire here into what sorts of monetary institutions enhance

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seigniorage. WHY COLLECT SEIGNIORAGE AT ALL? Several features make seigniorage an attractive option for raising revenue. First, a tax on money balances might be consistent with the Ramsey rule for minimizing

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be lower, for a given amount of revenue, than that of more obvious taxes. A rational dictator concerned with maximizing his survival in power, extracting seigniorage to the point where the marginal political resistance incurred per dollar of revenue is equal to that of alternative taxes, will then exploit the inflation

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ex post capital levy on holders of the state’s unindexed nominal liabilities, including base money. Such a levy may yield substantial revenue rapidly, making seigniorage an especially valuable fiscal resource during an emergency that threatens the state’s survival, such as an insurrection or external military threat (Glasner 1997). Its

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propaganda, by putting the ruler’s name or face on the coins) soon granted themselves legal monopolies in minting (Burns 1965). A monopoly mint extracts seigniorage from the metal it coins, subject to the accounting identity M = PQ + C + S, where M is the nominal value assigned to a batch

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number of ounces of precious metal embodied in the batch of coins, C is the remaining average cost of minting, and S is the nominal seigniorage. Out of every M’s worth of shillings coined, PQ is paid to individuals who brought in precious metal, C covers other mint expenses,

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run real revenues. Alternately, each new shilling could simply be declared to have a higher nominal value, increasing M for a given Q.7 Greater seigniorage per batch can also be earned without debasement by reducing P, that is, putting as much silver into each shilling but paying fewer shillings per

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batch back to the provider of silver. As an excess profit or rent in coin production, seigniorage cannot persist without legal restrictions on entry. The fiscal motive thus accounts for state-enforced coinage monopolies. In a competitive minting industry with constant returns

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competition would enforce the condition of price equal to marginal and average cost, M = PQ + C. Every mint, including the monarch’s, would earn zero seigniorage if competing mints could be established side by side, bullion owners were free to choose where to take their bullion to be coined, and no

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the modern theory of vertical integration suggests, monitoring and enforcement problems would likely be lower with vertically integrated (state-owned) mints. Second, increases in the seigniorage rate might be accomplished at lower cost than equivalent increases in the rate of mint taxation, in part because the incidence of an increased mint

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corresponding emergency capital levies. Accordingly, we observe that central governments have typically retained operational control over mints. LOCAL VERSUS INTERNATIONAL COIN A government that seeks seigniorage from the monopoly production of coin may act as a discriminating monopolist when the elasticity of demand with respect to their depreciation rates varies across

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English government debased some small-denomination coins, but carefully protected the international reputation of larger coins, especially sterling (Mayhew 1992). FIAT VERSUS COMMODITY MONEY The seigniorage motive favors fiat over commodity money in three respects. First, government captures a one-shot profit from replacing the existing stock of monetary metal with

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fiat money.11 Second, issuing fiat money is a cheaper way to capture an ongoing flow of seigniorage revenues each year. Finally, the demand for a fiat money is less elastic, because users encounter greater costs in trying to employ any foreign

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money in its place. We elaborate on these last two points in turn. Seigniorage flow is most profitably captured with a money that can be produced (in nominal units) at zero resource cost, and whose nominal stock can be

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be taken to the mint. The tax imposed by recoinage is fairly obvious once the reduced precious metal content of the new coins becomes known. Seigniorage flow can be extracted more easily and less obviously with a fiat money, whose nominal quantity can be increased merely by spending new units into

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). FIAT-MONEY MONOPOLY Why does a revenue-seeking government itself issue fiat currency monopolistically, instead of taxing private issuers? The reasons for thinking that a seigniorage-seeking government would prefer a mint monopoly to taxation of private mints apply again. In the case of fiat money, a more fundamental reason exists

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its note allotment by issuing notes with duplicate serial numbers (Sannucci 1989). RESTRICTIONS ON SUBSTITUTES The ability of a national fiat-money producer to earn seigniorage is, like that of a national mint, limited by the availability of substitutes for domestic base money. Potential substitutes include foreign currencies. As noted above

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to limit currency substitution, and could do so using such means as exchange controls and legal tender laws (Nichols 1974). Nations threatened by loss of seigniorage due to currency substitution, because they have for other reasons committed to dismantle barriers to free capital flows, might try to form a cartel—a

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multinational central bank—and share its seigniorage. The movement for a European central bank can thus be given a fiscal interpretation. A second set of close substitutes for domestic base money consists

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allowing private firms to issue redeemable substitutes for (fiat) base money, a rational dictator would not deprive himself of the ability to increase short-run seigniorage via a surprise inflation. Gerald Dwyer and Thomas Saving (1986) show that, if bank deposits and currency are perfect substitutes, and if government is as

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and Canada, commercial bank notes displaced coin (and, in Canada, government-issued “Dominion” notes) almost entirely where their denominations overlapped. The government therefore enhances its seigniorage tax base by suppressing private notes.12 Bank deposits, by contrast, are not such close substitutes for base money, and competing private banks can typically

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more efficiently than government can.13 Taxes on private banks are likely to bring in more revenue than a ban on private banking that enhances seigniorage only slightly. In consequence, as David Glasner (1989: 33) notes, for fiscal reasons, “most governments have preferred allowing banks to operate and exploiting them as

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expected. Such a capital levy makes it possible to generate more real revenue in the short run, but at the cost of smaller steady-state seigniorage once the public recognizes the risk of a high-inflation period occurring and therefore holds less real base money at any given nonpeak inflation rate

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be short lived without the levy. Consistent with this view is the finding of Alex Cukierman and others (1992) that inflation rates and reliance upon seigniorage revenue are positively correlated with political instability and polarization. In countries with more unstable and polarized political systems, established governments are more willing to sacrifice

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, and so would value a monetary arrangement that allows him to resort to an inflationary capital levy even if in ordinary times he collects little seigniorage (Glasner 1997). However, a capital levy strategy is time inconsistent: it yields more revenue (in present value terms) than steady inflation only if levies are

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standard, modified to allow for the suspension of central bank convertibility during fiscal emergencies.14 Drawbacks of this arrangement included its inability to yield much seigniorage during noncrisis times, and the high cost of sustaining (via postcrisis deflation) the public’s confidence in the promise to preserve the ancient and honorable

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credits issued by a central bank.16 These central banks enjoy exclusive monopoly privileges granted to them by their governments, returning the bulk of their seigniorage revenues to the sponsor governments. Currency areas correspond to national political boundaries rather than to the criteria suggested by the theory of optimal currency areas

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. Just how is it that monetary institutions came to take a form so well suited for meeting governments’ fiscal ends? An answer based on continuous seigniorage maximization, in which governments are portrayed as designing monetary arrangements from scratch purely to achieve fiscal ends, would be far from adequate. Fiscal motives, we

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issue of fiat money—became a permanent feature of monetary systems only during the 20th century. Our explanation for the gradual and uneven development of seigniorage-enhancing monetary institutions consists of three parts. The first is that government monetary institutions represent to a large extent piecemeal and opportunistic modifications of private

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genuinely “Leviathan-like” governments of preindustrial times were simply unable to take advantage of such technological developments, and so had to settle for relatively limited seigniorage revenues obtainable through mint monopolies. Eventually, as explained above, increased opportunities for foreign currency substitution made the exploitation of mint monopolies for revenue unprofitable, causing

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look elsewhere for sources of revenue, and emergency revenue especially. One such source was the banking industry, originally perceived not as a device for earning seigniorage, but as a source of loans on favorable terms. Such loans were typically obtained in exchange for awards of monopoly privileges, especially in note issuance

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(Smith 1936). The harnessing of monopoly banks of issue—central banks—as sources of substantial seigniorage came later, with the discovery that such banks (unlike competing banks of issue) could suspend payments with relative impunity, opening the way to the emergence

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of fiat money. We hypothesize that the seigniorage motive did not produce fiat money before the 20th century17 because (redeemable) bank notes had not yet become commonly accepted in areas of lesser financial

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to survive than other arrangements even when it proves to be a source of disorder. Glasner (1997: 36) argues that early states with access to seigniorage “improved their chances of survival in military competition.” During peacetime also, fiscally advantageous innovations prove especially durable, in part because they enjoy the support of

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revenue-enhancing changes, culminating in arrangements that look remarkably as if they were designed from scratch to maximize government revenue. Together these arguments imply that seigniorage-enhancing institutional arrangements will be observed emerging later in countries that face fewer fiscal crises, and especially those facing fewer external military threats. Thus, central

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-1864. The only question left to be answered was whether to limit the inflationary consequences of these measures (and thereby enhance the Treasury’s real seigniorage earnings) by forcing state banks out of the currency business. Although defenders of state banks were able to exclude a prohibitive bank-note tax from

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minting costs paid out of public funds; but the mint might instead deduct the costs of coin manufacture, or “brassage,” and even some profit or “seigniorage,” from the amount of coin it supplies in exchange for bullion. In that case, coins will command a premium above their bullion value representing the

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of the Board of Governors serve staggered 14-year terms, and the fact that the Fed, instead of relying on Congress for funding, uses its seigniorage revenue to cover its costs and pay shareholder dividends (Board of Governors 2013a, 2013b; FRBD2). But despite these arrangements, and no matter how independent the

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production of debased coins that his subjects were compelled to accept at face value. 6. Lorena Alcazar (1994) briefly surveys empirical work on whether actual seigniorage rates conform to the implications of the optimal-tax model. In most countries, they do not. 7. Note that medieval coins typically displayed no numbers

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that private bank notes will be phased out in Hong Kong now that it has come under mainland Chinese rule. In Scotland and Northern Ireland, seigniorage is extracted by a 100 percent marginal reserve requirement (in noninterest-bearing Bank of England liabilities) against notes. 17. There were episodes of temporary suspension

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. (2004) “Output Composition and the U.S. Output Volatility Decline.” Economics Letters 82 (1): 115–20. Alcazar, L. (1994) “Political Constraints and the Use of Seigniorage: Empirical Evidence from a Cross-Country Analysis.” Manuscript, Washington University, St. Louis, Mo. Aldrich, N. W. (1910) “The Work of the National Monetary Commission.” Address

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Company. Cukierman, A. (1992) Central Bank Strategy, Credibility, and Independence: Theory and Evidence. Cambridge, Mass.: MIT Press. Cukierman, A.; Edwards, S.; and Tabellini, G. (1992) “Seigniorage and Political Instability.” American Economic Review 82 (3): 537–55. Curtis, C. A. (1931) “Banking Statistics in Canada.” In Statistical Contributions to Canadian Economic History

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U.S. GDP Volatility.” Economics Department Working Paper 09–14 (June). Universidad Carlos III de Madrid. Motomura, A. (1994) “The Best and Worst of Currencies: Seigniorage and Currency Policy in Spain, 1597–1650.” Journal of Economic History 54 (1): 104–27. Mullineaux, A.W. (1987) “Why Is the U.S. Banking

Endless Money: The Moral Hazards of Socialism

by William Baker and Addison Wiggin  · 2 Nov 2009  · 444pp  · 151,136 words

of its citizenry; the other is to tax the value of circulating medium simply by printing money. The latter benefit to government is known as “seigniorage,” and it accrues directly to the holder of the press. Perhaps on account of living through such an extreme episode by necessity, or perhaps from

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currencies and the natural deflation that would accrue from productivity gains, and from the integration of billions of lowwage laborers into the world economy represents seigniorage transferred to the political beneficiaries of socialized credit. It is a staggeringly large number annually. Taken to the extreme, bank reserve requirements could be set

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the pound or the dollar, respectively, which were grounded upon gold and could serve as a reserve base underneath foreign money supplies instead of silver. Seigniorage as well as control over financial affairs would accrue to the issuer of the reserve currency, the United States or Britain, and their client states

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and other professional currency experts. His predecessor, Charles Conant, had been paid handsomely in deals, such as when he obtained 50 percent of the total seigniorage of displacing the Philippine’s silver specie system in favor of dollar-backed paper money for his banker, J.P. Morgan, in 1903-1905. Kemmerer

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currency, even if the creditor nations pull out of the dollar or other perhaps equally inflated paper currencies, it can make one last withdrawal of seigniorage from its money supply by monetizing it. But the cost would be the loss of operating the world reserve currency. Gao Xiqing continues, “‘If China

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too much money through direct purchases of government obligations, it transfers wealth to the government—by taxing the value of savings—a concept known as seigniorage. During normal times, it would print through fractional reserve lending, which would transfer wealth to borrowers. Moreover, this latter form of credit inflation is a

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be institutionalizing socialization of assets and debts as a priority, and that its cost will be less control over dilution of currency value (inflation), greater seigniorage (a tax that degrades incentives and therefore erodes capitalistic growth), and the concentration of risk into large institutions that are “too big to fail,” producing

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and discovered a new way to obtain revenue. Taxes would not be raised for at least another century, but this emperor began the practice of seigniorage, wherein the silver content of coinage was reduced. Nero clipped coins by 10 percent. At first this produced immediate wealth for the emperor, but it

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geographic reach stretched thinly by military conquest and the populace having lost incentives to improve crafts or agricultural production. Trajan (98 ad–117 ad) upped seigniorage to 15 percent, Marcus Aurelius (161 ad–180 ad) made it 25 percent, and Septimus Severus (193 ad–201 ad) debased by 50 percent. This

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basis.22 Shipwrecks plunged to fewer than 80 in the 200 years after Pertinax, and half again this in the next 200. Punitive taxation and seigniorage eventually ended money-based exchange by the middle of the third century. What emerged was a government that was purely totalitarian and thoroughly dysfunctional, based

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constant, deflation occurs, because goods and services provided have increased in number while money has remained constant. That Rome chose to debase its currency through seigniorage is another matter, and it belies the inability of commerce (as proven through shipwrecks) to increase Gross Imperial Product (GIP) and have adequate taxes accrue

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followed by Edwin Kemmerer, a trained economist, who built a fortune doing advisory work, which placed him in line to share fees based upon considerable seigniorage earned. Kemmerer continued Conant’s work spreading the virtues of sound currency around the world, enabling America’s open door policy to be quite potent

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shores, driving up interest rates and crippling commerce. So in compliment, the other feeding tube of governments, known for centuries, would need to be attached: seigniorage. The establishment of the Federal Reserve System along with the movement to the gold-exchange standard would be enough to give birth to a completely

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, Anna, 85, 91–92, 112 Secrets of the Temple (Greidner), 109 Secured Funding, 149 Securities and Exchange Commission (SEC), 327–329 Seidle, A. H., 326 Seigniorage, 45, 55, 304–305 Self-indulgence: aging hippies, 312–313 responsibility, 301–307 overview, 300–301 personal liberation and marriage, 307–312 See also Culture

Cryptoeconomics: Fundamental Principles of Bitcoin

by Eric Voskuil, James Chiang and Amir Taaki  · 28 Feb 2020  · 365pp  · 56,751 words

amounts of hash power, substantially reducing the cost of attack . It is an error to assume that states do not collaborate [104] in defense of seigniorage [105] . The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation... imf.org As such one cannot

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becomes more distributed to avoid these expenses. As it becomes apparent that controls on points of aggregation are insufficient enforcement, and the awareness surfaces that seigniorage [143] is at risk, transaction and complementary mining of Bitcoin is outlawed [144] . As states collaborate to protect their monies, this may become a

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of an official new money, i.e. Fedcoin [145] . The objective would be to appear to embrace a “safer” money than Bitcoin while retaining the seigniorage and surveillance advantages of electronic state money substitutes. Assuming sufficient resistance, Bitcoin persists independent of Fedcoin as a black market money. At this point the

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reserve currency (no trading partners). The outcome for mutual Bitcoin (Reward) : Economic sanction. Economic sanction of trading partner. A reserve currency not taxed via seigniorage. The outcome for individual Dollar (Temptation) : No economic sanction. Economic sanction of trading partner. A reserve currency taxed via

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outcome for mutual Dollar (Punishment) : No economic sanction. No economic sanction of trading partner. A reserve currency taxed via seigniorage. Strong Symmetric Dilemma With Ordinal Outcome Relations Brazil\Ireland Bitcoin Dollar Bitcoin R\R S\T Dollar T\S P\P To be considered

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reserve [169] , and presumably sanctions are undesirable. To determine if R > P and T > R hold, an objective method is required to relate only seigniorage and sanction, as presumably sanctions are undesirable. This can be obtained by the observation that Gold is subject to neither

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seigniorage [170] nor sanction. In other words Gold provides the above benefits of Bitcoin without sanction. Yet Gold has not been chosen (and was previously

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needed to be transported from one country to another. gold.org Dollar has been preferred to Gold despite having similar weight, significantly larger size, and seigniorage. The Gold-Bitcoin relation assumes no distinction in volatility and liquidity, though Gold objectively outperforms [174] Bitcoin in both areas. Given that Gold and

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value of Bitcoin over its alternatives derives directly from removing the state from control over both monetary supply and transaction censorship . Advantages include freedom from seigniorage [216] , foreign exchange controls [217] , and financial surveillance [218] . These allow the money to be transferred to any person , in any place, at any

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time, without need for third party permission. These advantages represent cost reduction through the avoidance of tax. Seigniorage is directly a tax, while foreign exchange controls limit its evasion. The state itself often claims political independence [219] as an objective in the interest

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of compelling its use requires resistance [227] . The essential Fedcoin distinctions from Bitcoin allow the state to arbitrarily create new units (seigniorage [228] ) and deny transfer (censorship ). The seigniorage objective can be achieved by a hard fork that introduces one new consensus rule . This rule allows the introduction of new units

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preserve the value of the money relative to state-controlled alternatives. Inflationary Quality Fallacy There is a theory that the price inflation [230] caused by seigniorage [231] causes the production of lower “quality” and/or less durable [232] goods. Durability is one of many qualities that a person might value

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is predictable it is offset in the real interest rate [240] . To the extent it is not predictable Rothbard’s conjecture does not apply. Seigniorage is a tax, which makes people poorer. Being poorer increases time preference, the opposite effect described by the theory. All tax shifts property involuntarily from

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difficult to achieve in practice; it is conceptually impossible and self-contradictory. Murray Rothbard: Man Economy and State Therefore it cannot even be shown that seigniorage itself makes those taxed poorer than the taxes it presumably replaces. Only a net increase in tax implies a reduction in wealth. Reservation Principle The

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reserve currency from people using monopoly money [246] , foreign exchange controls [247] and direct taxation. Using their own money discounts purchases by the amount of seigniorage [248] . Foreign exchange controls restrict or prohibit use of the reserve currency as money. By treating the reserve currency as property but not money, the

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than it has money in reserve, then abrogates the notes and retains the reserve. The devaluation of the notes is the result of excess issuance (seigniorage) and is a tax on those who hoard them. The state collects the reserve money into its hoard, which represents its ability to settle

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at 3% and cover the difference with taxes. The state has many sources of tax revenue, but typically central banks subsidize discounted loan rates with seigniorage [284] . Central banks are known for proclaiming that they do not “print money”, but this is exactly what they do. The U.S. Federal

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so. When the cost of printing a bill reaches its face value, it has transitioned from fiat to commodity money [299] . At that point its seigniorage value is zero. As devaluation continues the denomination must be discontinued. Observation of central banks engaged in hyperinflation [300] is informative, as money reaches printing

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taxes in the manner of monopoly. The fee level may exceed a market rate, and its enforcement is subsidized by taxes. Monopoly mining can produce seigniorage [481] just as any monopoly money. The block header continues to provide a proof of work, but no longer provides a proof of market

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a monopoly premium on this cost. There is a theory that Bitcoin’s production cost is “unforgeable”, where seigniorage of state money represents “cost forgery”. As has been shown, Bitcoin is also subject to seigniorage , invalidating the theory. All goods have real production cost. Monopoly exists to raise price above cost.

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that credit expansion [500] driven by state monetary expansion is a market force. This assumption fails to consider that market money [501] cannot produce seigniorage [502] . Seigniorage is a tax. The created monetary units do not represent new capital but instead the dilution of existing units by the state, transferring ownership of

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its monopoly on production [611] , and a political cost [612] of monetary inflation [613] . Free banking, such as with Gold or Bitcoin, enjoys no seigniorage [614] privilege, due to the nature of competition. Finally, it is often the case that people advocating for full reserve lending are the same people

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has no relevance to market money – a fact that seems to have escaped economists since Cantillon. The basis of the distortions explained by Cantillon is seigniorage [630] , not money production. Market production of money, just as market production of all things, is not only neutral in real effects [631] but

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of state intervention is the common concept of free banking [677] , where there is no statutory control [678] , state insurance [679] , discount capital [680] , or seigniorage [681] . The bank uses commodity money [682] unless otherwise specified, which simplifies calculations by eliminating [683] the need to offset price inflation [684] or price

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subsidy (inclusive of discounted borrowing), which directly increases rate of return. central-return-rate = real-bank-return-rate * subsidy-income-ratio Where tax includes seigniorage of the bank money, the Fisher Equation [702] must be applied above to translate the interest rate from a nominal rate to a real rate

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value target” Bitcoin, seigniorage6 [789] will be eliminated. However, as shown in Stability Property [790] , the purpose of state money (fiat [791] ) is to collect seigniorage, which is a tax. In other words, Ideal Money is a tax collection system that collects no tax. Granting the above assumptions, Ideal Money is

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it depends on monopoly protection [817] for production. It is this prohibition of market competition that allows the state to limit supply and therefore extract seigniorage [818] . monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group Murray

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reserve banking [851] inherently gives banks the ability to create money at no material cost. The theory does not depend on the state privilege of seigniorage [852] . It is considered a consequence of the accounting practices of free banking [853] . This is sometimes referred to as creating money ex nihilo

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[893] , the commodity money growth rate is 0%, or a growth ratio of 100%. Monopoly money [894] exhibits depreciation due to seigniorage [895] . monopoly-money-growth-ratio = commodity-money-growth-ratio / seigniorage-ratio 100% / 103% = ~97% Fixed supply money may appreciate due to price deflation [896] fixed-supply-money-growth-ratio =

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replacement of all money. Bitcoin offers no security [931] against state prohibition of its use in trade . Under the assumption that states intend to retain seigniorage [932] and censorship , we might multiply by the fraction of the global black market, which is estimated [933] to be ~28% of the global

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increased arbitrarily (or taxed as demurrage [952] ) by the sovereign [953] due to the financial reward of seigniorage [954] . When this monetary inflation is predictable it can be capitalized, which discounts the return on seigniorage. As such changes to supply are often not published [955] . Due to state monopoly [956] protection (

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i.e. production is the crime of counterfeit), competition cannot effectively limit returns. The resulting sovereign profit (tax) is the reward of seigniorage and the reason for monopoly money [957] . Monopoly protection is the sole economic distinction between commodity and monopoly money. The supply increase caused by

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seigniorage is mitigated only by political unrest as people resist the consequential value decrease. This unrest initially manifests as capital flight [958] , which is countered

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[102] Chapter: Balance of Power Fallacy [103] Chapter: Pooling Pressure Risk [104] http://www.imf.org/external/index.htm [105] https://en.wikipedia.org/wiki/Seigniorage [106] Chapter: Threat Level Paradox [107] https://www.theatlantic.com/magazine/archive/2017/09/big-in-venezuela/534177/ [110] Chapter: Fragmentation Principle [111] Chapter:

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Principle [128] Chapter: Lunar Fallacy [131] Chapter: Hearn Error [132] Chapter: Value Proposition [134] Chapter: Other Means Principle [135] https://en.m.wikipedia.org/wiki/Seigniorage [136] https://www.imf.org [137] Chapter: Pooling Pressure Risk [138] Chapter: Axiom of Resistance [139] Chapter: Risk Sharing Principle [140] https://en.wikipedia.org

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/wiki/Seigniorage [141] Chapter: Money Taxonomy [142] Chapter: Qualitative Security Model [143] https://en.wikipedia.org/wiki/Seigniorage [144] Chapter: Hearn Error [145] Chapter: Fedcoin Objectives [146] Chapter: Public Data Principle [147] Chapter: Proof

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wikipedia.org/wiki/Attack_surface [214] https://en.wikipedia.org/wiki/Foreign_exchange_controls [215] Chapter: Centralization Risk [216] https://en.m.wikipedia.org/wiki/Seigniorage [217] https://en.m.wikipedia.org/wiki/Foreign_exchange_controls [218] https://en.m.wikipedia.org/wiki/Know_your_customer [220] Chapter: Money Taxonomy [221

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[227] Chapter: Axiom of Resistance [229] Chapter: Risk Sharing Principle [230] https://en.m.wikipedia.org/wiki/Inflation [231] https://en.m.wikipedia.org/wiki/Seigniorage [232] Chapter: Depreciation Principle [233] Chapter: Money Taxonomy [234] https://en.m.wikipedia.org/wiki/Subjective_theory_of_value [235] Chapter: Time Preference Fallacy [

…

done-our-money/html/p/81 [246] Chapter: Money Taxonomy [247] https://en.wikipedia.org/wiki/Foreign_exchange_controls [248] https://en.wikipedia.org/wiki/Seigniorage [249] https://www.investopedia.com/articles/personal-finance/081616/understanding-taxes-physical-goldsilver-investments.asp [250] https://en.wikipedia.org/wiki/Inflation [251] https://en

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Chapter: Axiom of Resistance [499] Chapter: Proof of Memory Façade [500] Chapter: Credit Expansion Fallacy [501] Chapter: Money Taxonomy [502] https://en.wikipedia.org/wiki/Seigniorage [503] Chapter: State Banking Principle [504] https://www.frbdiscountwindow.org [505] https://www.fdic.gov/resources/deposit-insurance [507] Chapter: Dumping Fallacy [508] https://en

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wikipedia.org/wiki/Tautology_(logic) [636] Chapter: Production and Consumption [637] Chapter: Labor and Leisure [639] Chapter: Regression Fallacy [640] https://en.wikipedia.org/wiki/Seigniorage [641] https://en.wikipedia.org/wiki/Catallactics [642] Chapter: Speculative Consumption [643] https://en.wikipedia.org/wiki/Pump_and_dump [644] Chapter: Time Preference Fallacy

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://en.wikipedia.org/wiki/Federal_Reserve [679] https://www.fdic.gov [680] https://en.wikipedia.org/wiki/Discount_window [681] https://en.wikipedia.org/wiki/Seigniorage [682] Chapter: Money Taxonomy [683] Chapter: Inflation Principle [684] https://en.wikipedia.org/wiki/Inflation [685] https://en.wikipedia.org/wiki/Deflation [686] Chapter:

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: Credit Expansion Fallacy [780] https://en.wikipedia.org/wiki/Promissory_note [788] https://en.wikipedia.org/wiki/Legal_tender [789] https://en.wikipedia.org/wiki/Seigniorage [790] Chapter: Stability Property [791] https://en.wikipedia.org/wiki/Fiat_money [797] https://en.wikipedia.org/wiki/Monetary_inflation [798] https://en.wikipedia.

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/wiki/Fisher_equation [892] https://en.wikipedia.org/wiki/Monetary_inflation [893] Chapter: Depreciation Principle [894] Chapter: Money Taxonomy [895] https://en.wikipedia.org/wiki/Seigniorage [897] Chapter: Inflation Principle [898] https://en.wikipedia.org/wiki/Inflation [899] Chapter: Time Preference Fallacy [901] Chapter: Speculative Consumption [905] https://medium.com/@

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) [923] Chapter: Debt Loop Fallacy [924] https://en.wikipedia.org/wiki/Money_supply#United_States [931] Chapter: Permissionless Principle [932] https://en.wikipedia.org/wiki/Seigniorage [933] https://voxeu.org/index.php?q=node/7964 [934] Chapter: Stability Property [935] Chapter: Substitution Principle [937] Chapter: Inflation Principle [938] https://en.

Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity

by Paul Ely Beckerman and Andrés Solimano  · 30 Apr 2002

the CAN (or MERCOSUR).13 Still, the development of practices of mutual consultation in monetary and exchange-rate matters among member countries is worth pursuing. Seigniorage and Lender of Last Resort A classic argument in the case for national money14 is that, by giving up the use of national money and

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resources that the creation of money entails and the low cost of producing (paper) money. This difference is called seigniorage. For ranges of low to moderate inflation and with “normal” demand for money, seigniorage can 10 CRISIS AND DOLLARIZATION IN ECUADOR represent several points of GDP. By adopting the U.S. dollar

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as its national currency, Ecuador loses this source of revenue and transfers seigniorage to the Federal Reserve Bank of the United States. However

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, the quantitative importance of the loss of seigniorage in Ecuador is bound to be modest, as the economy was already highly demonetized and de-facto

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.S. dollar was officially adopted. In any case, it should not be ruled out that in the future some arrangement could be made for the seigniorage to be shared with Ecuador. Another feature of a dollarized system is the apparent absence of a lender of last resort. Because the Central Bank

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. 2002. “When to Dollarize.” Journal of Money, Credit and Banking 34(1):1–24. Fischer, Stanley. 1982. “Seigniorage and the Case for National Money.” Journal of Political Economy 90(April):295–313. ———. 1993. “Seigniorage and Official Dollarization.” In Nissan Liviatan, ed., Proceedings of a Conference on Currency Substitution and Currency Boards, pp

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variable exchange-rate systems to maintain large foreign-exchange reserves. Doing so has a high opportunity cost, which must be offset against the benefits of seigniorage. Furthermore, a hard fixed-exchange rate becomes more attractive as spontaneous dollarization becomes widespread and policy credibility becomes weaker. This was the case for Ecuador

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. economic influence operates under any exchange-rate regime. Another presumable disadvantage of dollarization is the loss of seigniorage. Having a local currency allows the central bank to secure seigniorage gains, whereas full dollarization leaves the seigniorage gains in the hands of the U.S. Federal Reserve.2 The appropriate comparison, however, would be

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laws, Argentina recovered more rapidly than Mexico, which had devalued heavily. 2. U.S. Senator Connie Mack has argued that the United States should share seigniorage with countries adopting the dollar. 3. This section draws on Moreno Villalaz’ analyses of the Panamanian monetary system (1997, 1999a, 1999b. 4. Argentina’s recent

Where Does Money Come From?: A Guide to the UK Monetary & Banking System

by Josh Ryan-Collins, Tony Greenham, Richard Werner and Andrew Jackson  · 14 Apr 2012

money in the Bank of England Box 7: What is LIBOR and how does it relate to the Bank of England policy rate? Box 8: Seigniorage, cash and bank’s ‘special profits’ Box 9: Real time gross settlement (RTGS) Box 10: If banks can create money, how do they go bust

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State money collapses when the sovereign power is overthrown. Coins are rarely full-bodied and even then need guaranteeing by the stamp of the ruler seigniorage. However, there were severe disadvantages in relying solely on the Government to provide sufficient money for everyone to use; perhaps most importantly, people could not

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will repay their loans than banks are willing to create new ones and the money supply will contract, creating a downturn. 4.4. Cash and seigniorage The Bank of England clearing payment system is a closed loop (Figure 13). As a customer, I cannot withdraw my bank deposits in the form

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non-bank private sector, or, in the case of the Government, by borrowing from the commercial banks in the form of loan contracts.* Box 8: Seigniorage, cash and bank’s ‘special profits’ The Bank of England sells bank notes to commercial banks. They sell these notes at face value (a £10

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the face value and cost of production gives the Bank of England a substantial profit. This profit from the creation of money is known as ‘seigniorage’, and is paid over to the Treasury, where it can be used to fund government spending or to reduce taxation. Between 2000 and 2009 this

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seigniorage amounted to nearly £18 billion.14 The growth of digital commercial bank money, vis-à-vis government issued cash, can be seen to have the

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effect of significantly reducing this seigniorage profit to the Government proportionate to the total money supply.15 Commercial banks do not generate seigniorage themselves as they issue credit which will, at some point, be repaid in full. However, as we

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government spends as much or even more on compounded interest on their debts than on their core government expenditure programmes (see also Box 8 on ‘seigniorage’). Exploring alternative methods of creating new money is beyond the scope of this book, but these historical examples are important to illustrate that alternative systems

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NLF also receives all the profits from the Issues Department of the Bank of England.10 The Issues Department is responsible for supplying banknotes. This seigniorage revenue is, of course, a profitable activity, as the cost of producing a banknote is a small fraction of its face value (see Section 4

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11 savings, investment of 12-13 savings accounts 60 Schumpeter, Joseph 10, 30-1 secondary banking crisis 1974 50 securities 40-1 securitisation 100-1 seigniorage 74 settlement 29, 59, 64, 76, 128n, 162-3, 167-8 shadow banking system 101-2 Simmel, Georg 28 solvency financial crisis and 102-3

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