2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
In 1290, Philip IV waged wars in France. There was not enough money for financing. The minting of new coins led to more and more inflation. To ensure the presence of gold in the treasury, the king robbed the kingdom of the Lombards, took away the money of the Jews and confiscated the property of the Templars. All this was done in order not to pay seigniorage - this is a reward for minting coins.
Essence
Seigniorage is the income received from increasing the money supply by the state. The government can control the amount of money in circulation. It is a key link in the country's credit policy.
In the Middle Ages, minting was carried out by the Mint. The feudal lord received metal from the customer. Most of the raw materials were used to make coins, and the remainder served as payment for services. Currency seigniorage is income that was divided between the brassage (mint) and the sovereign (feudal lord).
Education
The cost of minting coins of different denominations practically did not differ, but the weighthesitated. Therefore, in some countries, the fee was set depending on the face value or as a percentage of the weight and volume of one coin. Let's take a closer look at what seigniorage (MIT) is.
This term, translated from Latin, means "chief", or "senior". In terms of commodity and fiat money, it is calculated in different ways. In the time of Philip IV, the service fee was the difference between the value of the coins and the silver that was used to make them.
Modern seigniorage is the difference between the value of the issue and the denomination of new banknotes.
A bit of history
The justice of the peace issued a verdict according to which the Central Bank of Italy should return the difference in the cost of printing money to the citizens of the country. For 8 years of activity of the Treasury, the debt of the Central Bank for 2003 amounted to 5 million euros. But by this time, the lawsuit had passed into the jurisdiction of the European Central Bank. Supported by the Banking Litigation Association of Consumers ADUSBEF, the Central Bank's attorneys challenged the earlier ruling, calling it unfounded.
This example is very revealing. Seigniorage originated in the feudal era, but is still in effect today. And today the state receives profit for issuing banknotes. The problem is that the issue of money is unlimited. When their quantity begins to exceed the amount of goods available, prices rise.
Seigniorage and inflation tax
You can increase the money supply by issuing banknotes, issuing money kept on deposit, and purchasing government bonds. In a stable economicIn this situation, the issuance of banknotes generates an inflationary tax. The issue reduces the value of existing financial assets. The exchange rates are regulated by the state. The issuing center represented by the Central Bank receives all the benefits from the increase in the money supply. The inflation tax is called a hidden tax because people who do not index their income and keep it in the form of bank deposits suffer from emission.
The state receives additional capital, increasing the rate of inflation. The Americans were the first to notice this and created a single emission center - FRZ. The next impetus for the establishment of monopoly was the Great Depression. Today there is already a scheme in which the government receives money from the market.
Fiat money profit
If funds are made from a material that has its own value, then the share premium consists of the difference between the cost and the face value of banknotes (paper or electronic). For example, if the cost of a hundred dollar bill is 4 cents, then the seigniorage will be 9996 cents. And that's with a single turn. If we take into account that for each year out of 10 years of its service life, a bill passes an average of 4 turns, then the income is very tangible.
Emission of non-cash pays off almost completely. Therefore, some scholars argue that e-seigniorage is a key driver of we alth accumulation in the 21st century.
The profit from issuing banknotes increases if the currency is used abroad. For example, the US receives more seigniorage than any other country in the world. Dollarused in international trade, in the accumulation of reserves. In this case, seigniorage is income from additional assets that a country can acquire from its foreign reserves, minus investment by non-residents and all administrative expenses.
Information about how much seigniorage is a state secret. And it is not disclosed. Seigniorage in Russia fluctuates within 15% of GDP. It is 0.66% in the Netherlands, 3% in the US, and over 10% in Italy and Greece.
Seigniorage is not only income, but also a loss from emission. The cost of making coins of small denominations is most often not covered by their face value. Therefore, many central banks do not issue them or emit them in very small quantities.
Where does seigniorage go?
Share premium does not go into private hands, but goes to the Central Bank. In the US, the profit from the emission is transferred to the accounts of the Federal Reserve System, although the state regulates its use. Part of the profit (6%) is directed to the payment of dividends, and the rest is credited to the budget revenues. For comparison, private investors of the Bank of Japan receive 4% of share premium. Seigniorage in Russia is divided into two parts. The state receives half, and the activity of the Bank of Russia is financed from the second part.
In the Russian Federation, a total of 15 million banknotes and 50 million coins have been issued. That is, even according to the most conservative estimates, the income from the issue is significant. Seigniorage can also result fromsettling of a part of withdrawn and unused banknotes from collectors. However, Eurostat has banned eurozone countries from using share premium to reduce budget deficits. But in countries with hyperinflation, on the contrary, seigniorage is used as one of the sources of income.
Conclusion
Emission of money is a profitable activity. Therefore, only the state has the monopoly right to issue banknotes. Since the Central Bank is engaged in the implementation of this idea, it writes down the financial result from the operation in the lines of its balance sheet. But in the Russian Federation, half of the funds go to the state budget.
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