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What is Seigniorage and Who Should Get It?
Nicolaus TidemanProfessor of Economics
Virginia Tech
Seigniorage in the Context of Monetary and Banking Reform
Three Important Reforms:• Ending Fractional Reserve Banking• Stabilizing the Value of Money• Distributing Seigniorage Fairly
Concentrate today on seigniorage
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What is Seigniorage?Oxford English Dictionary
• seigniorage, seignorage• 2. A duty levied on the coining of money for
the purpose of covering the expenses of minting, and as a source of revenue to the crown, claimed by the sovereign by virtue of his prerogative.– 1891 Daily News 6 Nov. 3/5 Any profit which the
State gets from note circulation, seigneurage, and the like.
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What is Seigniorage?• It is the profit from producing money• It is not the bank profit from fractional reserve
banking – That is competed away if banking is competitive– If banking is not competitive, profit should be
attributed more to barriers to entry than to fractional reserve banking
• Seigniorage tends to be modest for coins and substantial for paper money
• The would be no seigniorage if there were 100% reserves for currency
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What Happens to Seigniorage Now?• It does not appear in the National Income
Accounts because dollars are debts (?!!!?)• It appears indirectly in the profit of the
Federal Reserve Banks, which is taxed at a rate of 100% (NIPA Table 3.2, Line 8)
• So the U.S. Treasury collects all of the seigniorage that the Federal Reserve banks don’t spend.
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Is Anything Wrong with Having the Treasury Collect All the Seigniorage?
• At least it is collected publicly• But collection by the Treasury is akin to
Taxation without Representation• It is reasonable to wonder whether the
Federal Reserve Banks overspend.• There is an argument for equal sharing of
seigniorage • Seigniorage makes a nice revenue source for a
Basic Income Guarantee6
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How Much Seigniorage is There?
• About $15 per person per month• It could support a life-time interest-free loan
of about $4,000• It would be much bigger if there were no
fractional reserve banking• It increased by about $3,000 per person in the
fall of 2008
Sharing the Seigniorage Could Conceivably Prevent a Run on Dollars
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• A run on dollars is imaginable• Sharing the seigniorage would provide a
framework for reducing the money supply to whatever extent was necessary
• Having the framework might make it possible to avoid a severe reduction in the demand for dollars
Should Seigniorage Be Used to Finance Infrastructure or other Projects?
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• That would generally be unjust• But it would not be unjust to allocate to each
project the seigniorage from the increase in the demand for money that resulted from that project
Conclusion
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• Think about how you would like to recommend that seigniorage be shared
• Equal sharing has a lot to recommend it
