Seigniorage

Seigniorage, also spelled seignorage, is the net revenue derived from the issuing of currency. It arises from the difference between the face value of a coin or bank note and the cost of producing and distributing it. Seigniorage is an important source of revenue for some national governments.

Related Topics:
Currency - Coin - Bank note - Government

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For example, after the "50 State" series of Quarters was launched in the US in the late 1990s, the US government discovered that a large number of people were collecting each new quarter as it rolled out of the U.S. Mint, taking the pieces out of circulation. Since it costs the Mint less than five cents for each 25-cent piece it produces, the government made money whenever someone "bought" a coin and chose not to spend it. The US Treasury estimates that it has earned about $5 billion in seignorage profits from the quarters so far (April 2005).

Related Topics:
50 State" series - Quarters - US Treasury

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Seigniorage can also refer to a form of tax levied on the holders of a currency, and as such a redistribution of resources to the issuer. The expansion of the monetary base usually causes inflation in the long run. The redistribtion of wealth to the issuer of currency (government) from the holders of currency occurs when inflation decreases the real value of money held.

Related Topics:
Tax - Inflation

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Governments relying heavily on seigniorage as a source of revenue will find it counterproductive as in the long run gains from seigniorage are offset by the inflation caused thus real value and wealth cannot be created for society as a whole by the printing press. Most governments opt instead to raise revenue primarily by taxation, thereby preventing excessive inflation. An example of harm caused by seigniorage is the hyperinflation in Germany during the 1920s.

Related Topics:
Taxation - Hyperinflation - Germany - 1920s

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