Tuesday, 26 October 2010

Talk:Seigniorage - Wikipedia, the free encyclopedia

From Wikipedia, the free encyclopedia

Jump to: navigation, search

Ecological economists like Herman Daly talk about capturing seigniorage for the treasury while also, and simultaneously, a) removing the economy's spur to unsustainable economic growth and b) ending the process by which banks create money and at the same time debt--a pyramid of debt that creates a systemic need for debt repudiation. This content should be added to this article. Seigniorage is not properly a tax at all, and calling that disguises who gets seigniorage: the organization that creates the money supply. In our systeam, that is mostly private banks. So, if seigniorage is a tax, why is it given away free to private corporations? Seignorage is, properly speaking, the difference between the face value of money and the cost of producing that money. Since cost of production is, for banks, effectively zero (it's just blips in an electronic ledger), the seigniorage is the face value of the money created--which banks collect as interest and principle on the loans they make using money that doesn't belong to them. —Preceding unsigned comment added by (talk) 15:53, 7 October 2010 (UTC)

WikiProject Taxation [hide](Rated Start-class, Low-priority) TaxationWikipedia:WikiProject TaxationTemplate:WikiProject Taxationtaxation articles
WikiProject icon

This article is within the scope of WikiProject Taxation, a collaborative effort to improve the coverage of tax-related articles on Wikipedia. If you would like to participate, please visit the project page, where you can join the discussion and see a list of open tasks.
 Start  This article has been rated as Start-Class on the project's quality scale.
 Low  This article has been rated as Low-priority on the project's priority scale.
edit · history · watch · purge

I am glad your article mentions the Huber-Robertson proposal, otherwise it is largely misleading. Why do people who should know better pretend to insist that seigniorage for coins and seigniorage for notes is different, it is only the material they are made from that is different, no matter what black-box illusions go on at central banks.

Seigniorage has got nothing to do with gold, as gold has nothing to do with money, this lie is getting very old indeed, at least 5000 years old.

Seigniorage has also got nothing to do with inflation/deflation, tax, interest or anyting else construed in the article. Only economists could come up with such over-complicated rubbish.

Seigniorage is simply just the difference between the face value of the money and the cost of manufacturing, and maybe distributing, the money. Nothing more, nothing less.

Jamie Walton.

WikiProject Numismatics [hide](Rated B-class, Mid-importance) NumismaticsWikipedia:WikiProject NumismaticsTemplate:WikiProject Numismaticsnumismatic articles
WikiProject icon

This article is within the scope of WikiProject Numismatics, a collaborative effort to improve the coverage of Numismatism-related articles on Wikipedia. If you would like to participate, please visit the project page, where you can join the discussion and see a list of open tasks.
 B  This article has been rated as B-Class on the project's quality scale.
 Mid  This article has been rated as Mid-importance on the project's importance scale.



[edit] Quarters etc.

Collecting the US State quarters is given as an example of seigniorage. But even if the quarters are spent, isn't seigniorage also occuring? It doesn't seem like the coin collecting angle is relevant. (disclaimer: I know nothing of numismatics, ended up here by accident reading about the fed and money supply). Also, I think I found a citation for the statement "The U.S. Treasury estimates that it has earned about $5 billion in seignorage profits from the quarters": http://www.usmint.gov/about_the_mint/coin_production/index.cfm?action=production_figures&sqYear=2005#starthere Adding up the figures in my head (1999-2005) gives about $5 billion worth of quarters produced, in total. However the article as it reads now gives the impression the entire $5b is in the hands of coin collectors, which is probably not what was meant. 21:49, 6 February 2006 (UTC)Dylan

Funny, I ended up here for the same reason. I never hear this term before, but it does seems illogical that the quarters example has anything to do with this. And the fact that people save the quarters has nothing to do with wheather the gov. is making money or not. The gov. makes money if they do not destroy the money they receive in exchange for the new quarters or if they sell the new quarters for more than the cost to create the quarter in the first place.

  • Actually it does. If the mint had made this many quarters without the attraction of collectors, they would be sitting on shelves in the mint. The collectible interest keeps banks coming back to the mint to get more quarters and allows the mint to move more pieces into circulation increasing the total seignorage. Ruidh (talk) 19:21, 29 November 2007 (UTC)

EJG: There are two things to keep in mind about the state quarter series and seigniorage. First, the introduction of the new designs spurs demand for quarters so the mint has to produce more coins, thereby generating more seigniorage. Treasury keeps track of demand for coins and knows that new designs mean more demand. See http://www.phil.frb.org/files/br/brq203dc.pdf[1] for a report analyzing this phenomenon. Second, the earlier comment is right that seignorage occurs when the coin is put into circulation and it does not matter that the coins are collected. Where it does matter is on the back end of the seignorage equation. Ordinarily seignorage is only an interest free loan to the government because when the coins are worn out the government buys them back at face value, thereby negating the "profit" earned when the coins were put into circualtion. The big difference with collectable coins, of course, is that the back end of the deal never occurs because the coins never returned to the government. So the government gets to keep the seignorage profits. In order for the claim that the state quarters have resulted in $5 Billion in profit for the government virtually every state quarter issued must be colelcted and never turned in on the back end. That seems a bit extreme, although many of these quarters will, indeed be kept out of circualtion forever.

Questions about the factual accuracy of an example in an article are not, strictly speaking, NPOV concerns. I've removed the NPOV template from this article. palecur 00:36, 2 May 2006 (UTC)

  • Seigniorage occurs commonly when financing deficit funding. It occurs as inflation, printing more money then was previously in the market, the government however being the first issuer gets the previous full value of the money. Because the currency is inflating by the time the Government has to buy back the currency (some % of which is never returned anyways) the money is worth less then the original amount it was issued as. For instance a dollar issued in 1960 can be bought back by the government for about 15 cents of the value it was issued at. For more economic data on this see Advanced Macroeconomics by David Romer, or a similar advanced MacroEconomic Textbook [jh] —Preceding unsigned comment added by (talk) 01:37, 19 December 2007 (UTC)

Dated: April 25, 2005 http://www.cbo.gov/showdoc.cfm?index=6271&sequence=0 or http://www.cbo.gov/ftpdocs/62xx/doc6271/hr902.pdf (on page 5 of 5, last line of top text) or google's cache if you are impatient

"The Mint estimates that the 50 State Quarters program has generated about $4.6 billion in seigniorage since the program began in 1999."

  • All of the above comments involve the cost of producing the coins, and what the coins are used for, and that makes sense to me. The part that I do not like is the "How it works" section of the article, which discusses interest. If I allow the gov't to hold a dollar's worth of gold, while I have a mere paper dollar to hold, the "How it works" section claims that I have given the gov't an interest-free loan, with the implication that Seigniorage is the interest which I am forfeiting and allowing the gov't to profit with. But if that gold simply sits in the govt's vault, then it too generates no interest! I really don't see how interest is relevant to this article at all. --Keeves 15:56, 30 January 2007 (UTC)
    • Agree- the interest section is unclear. Interest does play a role in seigniorage in fiat money systems (for example: http://www.bankofcanada.ca/en/backgrounders/bg-m3.html), but that doesn't really have anything to do with gold. It might be true to say that this sort of seigniorage doesn't occur in a gold-standard monetary system, but that's probably all that needs to be said. As written, the gold example might also give the impression (probably unfairly) that the article has been goldbugged (the link to "digital gold" at the bottom does not help with this impression). --
      • The appreciation (or depreciation) of the gold, altough not an interest per se, still generates revenue to the government from money a citizen holds. -Payne

[edit] Pronounced?

Like "senior" or like "say"?

Jidanni (talk) 00:21, 18 November 2007 (UTC)

[edit] Payment cards

Payment Cards, VISA, AMEX also are a recognized form of "coinage" by monetary policy makers. Merchants pay to give their customers the convenience of using payment cards. Add a second definition? Somebody more expert in the use of Wiki should chime in. Also is there a payment card group or monetary policy group to attach this to or cross reference. Google today had a number of articles supporting this definition.

[edit] A comment by an economist

[The following is written by Pål-André Haugen:]On the wikipedia-page http://en.wikipedia.org/wiki/Seignorage, one can read this under the subheading "Further discussion":

"Ordinarily seigniorage is only an interest-free loan to the issuer because when the currency is worn out the issuer buys it back at face value thereby negating the revenue earned when it was put into circulation. Currently under the rules governing monetary operations of major central banks, seigniorage on bank notes is simply defined as the interest payments received by central banks on the total amount of currency issued. However if the currency is collected instead of being returned to the issuer the back end of the deal never occurs."

I sent an e-mail to economist Morten Linnemann Bech, Ph.D., who works at the Federal Reserve Bank of New York Research and Statistics Group, and asked him if it is true that "the back end of the deal never occurs"..., ..."if the currency is collected instead of being returned to the issuer?

In his reply to me, Morten wrote;

"Hi,I do not completely understand the use of the word "collected". I think the Wikipedia paragraph reads fine if "collected" is replace with "somehow destroyed."

In Morten's reply, he also made it clear, that a government/state issuing currency, which it eventually collects and "somehow destroyes", is using a form of tax that is a tax on money holdings.

This form of tax - i.e. a government/state issuing currency, which it eventually collects and "somehow destroyes" - seems to have been used with success by the government of the English Channel island Guernsey in 1813.

But what does it mean that "the back end of the deal(=Seigniorage) never occurs", if a government/state issues currency, which it eventually collects and "somehow destroyes"? This does actually read like being the perfect kind of taxation-system for a government/state, i.e., it seems to me to be too uniform, too perfect, too uncomplicated, and too non-bureaucratic.

[edit] The profit and cost

The part people are missing about the Goverment making money off printing money is the inflation. The idea is if people collect the 25c coin they don't spend it and then there is no inflation caused by the printing of the money. In a sense people pay the goverment 25c for a different 25c coin, this coin cost less so the goverment makes money, and if people "collect it" and don't spend it there is no inflation caused by the increase in money supply, and the goverment has now collected 25c-cost in tax. If they spend it then there are now 2 25c coins in circulation and so an increase in inflation will occur. So basically its a voluntary tax if people want to they can buy the coin and not spend it there giving the goverment money, the flip side is if they hold it long enough its value might increase as it becomes an antique Aidan 09/09/08

[edit] On fractional reserve and governments

The article states: "However, it is important to reiterate that banks or governments relying heavily on seigniorage and fractional reserve as a source of revenue will find it counterproductive." The article has no link for the term fractional reserve, which is a key concept in discussing seigniorage. Second: governments? The article should emphasize that in some of the most relevant cases (Federal Reserve, European Central Bank), entities issuing money are not government-owned: they are private, i.e. they are owned by consortia of private bankers. Or is my statement incorrect? Also, for those of us who do not hold an MBA, and for many who do: When a central bank issues a bill, it receives securities from the government for an amount equal to the face value of the bill, right? The securities produce a yearly yield, say 3%. When the bill is retired from circulation, the central bank sells the securities back to the government and gets the interest, correct? If by that time the bill has circulated for 4 years, the central bank will make a 12.6% profit out of issuing that bill (1.03^4), minus the cost of producing it, or am I wrong? So the issuing of money by central banks contributes substantially to the growth of public deficits. Why should money be issued by organisms other than governmental agencies? This holds many countries under the thumb of bankers and crushes them under the weight of a public debt that they will never manage to pay off. Am I correct, albeit simple minded? There is so much mythology on this subject that I could use a plainly written explanation. Thank you in advance. Giacomo, 12/26/08 —Preceding unsigned comment added by (talk) 21:26, 26 December 2008 (UTC) One last addition: some argue that money should not be issued by governments because governments will use it as a tool to expand their constituency, as opposed to safeguarding the common interest. My objection is that I have a hard time viewing privately owned central banks as guardians of the common good. So some alternative solution should probably be sought. The Swiss have come up with one: article 99 of the Swiss constitution dictates that 2/3 of the income generated by banks by way of issuing money should be redistributed to the Cantons. I use that in my discussions as indirect evidence that seignorage exists. Giacomo. —Preceding unsigned comment added by (talk) 22:05, 26 December 2008 (UTC)

This may differ from country to country, but the US Fed does not appear to operate as if owned by its member banks. In particular, when it creates money by acquiring Treasuries it remits the interest earned on those notes to the US Treasury. See the Monthly Treasury Statement (e.g., http://www.fms.treas.gov/mts/mts1009.pdf) Table 4, Miscellaneous Receipts - Deposits of Earnings by Federal Reserve Banks. My interpretation of that report is per http://www.econbrowser.com/archives/2008/12/federal_reserve_1.html, q.v. Let it also be noted that Fed Banknotes can be put in circulation by other means than the purchase of Treasuries. $1.3T will have been created to purchase GSE MBS (mortgage-backed securities created by Fannie Mae, etc.) by the end of March 2010. Andyvphil (talk) 13:07, 14 November 2009 (UTC)

[edit] Non-inflationary seignorage

I find both the article and the discussion somewhat confused. "Sound" seigniorage occurs without any theft from the public. In the course of time, the economy grows. The circulation velocity of mony grows as well, as a result of more efficient payment- and bank systems. Normally there is also a small inflation in the economy, but we've had periods (both in Germany and Japan around the turn of the century) with growth without inflation.

If you have growth withouth inflation, and - for the sake of the argument, for a shorter period - a constant velocity of circulation of money, you need more money to accomodate the growing number of transactions.

So a major part of the seignorage, which can be termed "sound" or "natural" seigniorage, arises only from the growth in the economy. If the sentral bank failed to supply this extra cash, we would get deflation. Conservative economists, "monetarists", don't think deflation matters, but in practice prices are not symmetrically flexible: They rise easier than they fall. This is especially the case with wages, which are - at least in Europe - normally set as a result of collective bargaining.

This "sound" or "natural" seignorage could be viewed as the price the participants in the economy pay for the convenient infrastructure of money. As roads get bigger and better, income from toll rises. As the money supply increases, in order to accomodate growth, seigniorage increases. —Preceding unsigned comment added by (talk) 13:50, 15 October 2008 (UTC)

Indeed, taxes are the price of government. Taxes can also be viewed as theft, when government doesn't provide value for money and/or the taxes are extracted without consent, however defined. Now, the Fed has - or will by the end of March 2010 - create 1.3 trillion dollars and purchase that amount of MBS from Freddie Mac, etc. That $1.3T competes with and devalues -- is stolen from or is a tax upon -- all preexisting dollar-denominated stores of value. My understanding is that the laws which create the Fed don't allow it to trade other than in Treasuries and a few other instruments, and definately not MBS, so consent is an issue. And the "convenient infrastructure of money" was not at stake in the decision to go ahead with this. Anyway, what is happening is that the Fed is extracting $1.3T in (macroeconomic) seigniorage and expending it on assets that are bound (because 5% mortgages will end as soon as the Fed pulls the plug) to be worth rather less...
That said, the article is indeed confused. This starts right in the overview. Banknote production has the same production seigniorage as species production. Either can be exchanged for securities to produce additional, holding value, seigniorage. Both have lifecycle costs. That last can in both cases be reduced by induced numismatic interest and is reduced by other sources of nonredemption. So the distinction between currency-issuance seigniorages is overplayed. Macroeconomic seigniorage is an entirely different animal. And the first example is misleading as it requires too close a reading to make clear how dependent it is on a third, particularly narrow, definition of seigniorage. How much the government can profit from interest-free loan of gold bullion is open to question, but it surely can do so, and whether that profit is seigniorage is to some degree a matter of choice of definition. Andyvphil (talk) 14:00, 14 November 2009 (UTC)

[edit] Example and seignorage as the carry on gold

The example section says seignorage is the carry on gold. Yet the carry article notes that in many cases the carry on commodities is negative. What makes gold so different? Gold has been a volatile investment. And how does the government 'profit' off the holding of gold if it rarely sells the gold? I'm under the impression that the US rarely sells its gold.

I was under the impression that seignorage arose more from accepting a certain amount of gold for currency, and then coining the currency using less gold than that, or something. II | (t - c) 17:07, 13 December 2008 (UTC)

[edit] Probable factual error

Speaking of the U.S. mint's state-quarter series, the article says, "Approximately 147 million people are collecting the coins." That number seems high. It would mean, for example, that over half of all the adults in the United States are collecting the quarters. Seems like quite a high estimate. (I realize that not all the collectors need be Americans, but 147 million people? Even worldwide?) The article provides a citation to back up the claim, but when I click on it, it leads to a blank page.

In the context of the example, the precise number of people collecting the coins is not relevant -- the example of seigniorage will work fine whether it's 147 million people, or some other number. —Preceding unsigned comment added by Salon Essahj (talkcontribs) 18:31, 3 July 2009 (UTC)

[edit] Sourcing and NPOV problems

Hi all -- I stumbled on this article today, and it's generally well-put together, but toward the end, it encounters a lot of problems.

The section on overseas circulation, in particular, suffers from the worst problems. An example:

"With €274 billion (roughly US$400 billion) of €500 banknotes circulating, a successful counterfeit operation would not only be extremely profitable, but it's eventual discovery would have profound consequences for the economy of Europe. The risk of this happening must be balanced against the advantages of seignorage."

This is both unsourced and opinion. Perhaps the original author would be willing to source some of this material? I've heard many of the assertions here repeated elsewhere, so it shouldn't be too hard to clean up. Arteros (talk) 16:34, 6 October 2009 (UTC)

  • Agreed, I removed this section. I think the article suffers from some problems, as it doesn't do a very good job of providing concrete examples of what seignorage is. There's an NPR article (that actually links to this entry) that provides a much better explanation.


Leuchars (talk) 22:58, 31 October 2009 (UTC)

[edit] What about issuance of fiat currency?

It seems like the whole entry and discussion assumes that we are talking about issuing currency that has a cost component of the underlying commodity that the currency is based on (i.e. usually gold).

Do the same comments apply when governments or central banks issue additional money with no change in the supporting commodity base?

We have been off the gold standard for some time now; this doesn't seem relevant? Shouldn't this aspect at least warrant a mention? It appears to me the actual seignorage is the amount of paper currency printed in this manner; the only cost to the issuer (government or central bank) is the printing cost.

I'm not an economist, but I have some grasp of the concepts, and it doesn't really seem to hold together. (talk) 15:25, 19 February 2010 (UTC)Robdashu

[edit] Overseas Circulation - ambiguous sentence

In the third paragraph of the section Overseas Circulation, the sentence, "As of the end of 2008, roughly twenty $100 banknotes and twenty $20 banknotes per person were in circulation, but the overwhelming majority of $100 bills circulate overseas." is imprecise.

Does it mean 20 x $100 banknotes + 20 x $20 banknotes per head of the population of the USA or per person worldwide? Hedles (talk) 09:56, 6 March 2010 (UTC)

[edit] Question of etymology

So what is the relationship of this economic term with "seignorialism"? Both obviously come from the same Romance word, yet this term refers to the profit (or loss) of physically creating currency, while the other refers to the economic mode of production better known as manorialism -- that an individual owns a piece of land & the labor of its attached inhabitants as real property that can be bought, sold, leased or mortgaged. Without proper sourcing, a reader with a non-economist background might conclude that this is simply jargon used only by certain schools of thought with libertarian leanings. -- llywrch (talk) 21:42, 26 June 2010 (UTC)