Seigniorage-- I came across this word when I was reading the paper and I really had no idea about the concept behind it. Pronounced
CEE-nyer-rij (seigniorage) is an absolute
monopoly. That is the government makes money by making money. It is the
profit or the difference between the
monetary face value of the coins and the cost of production, including the
market values of the metals they contain. Sometime during the 15th century, coinage became the
sovereign right of kings, who prescribed the total charge and the part they were to receive as seigniorage. The concept originated in the days when
precious metals comprised the monetary base and were considered as having intrinsic value. The government minted the coins, but private enterprise could
profit by producing the metal. Coins were an asset without a corresponding liability. The government as well as individuals could gain financial wealth by acquiring coins. The value of the coins in exchange for goods and services depended on their relative scarcity.
Most governments have some type of seigniorage and by today's standards the precious metal it is commonly based upon is bullion, usually the difference between the value of the bullion used and the face value of the coin. One drawback for governments deciding to adopt a universal money system is the loss of revenues from the issue of their own currency. By sharing seigniorage governments open up a whole new arena of complex political, economic, foreign policy issues. Some countries such as Ecuador have changed their system to dollarization with the US in an effort to stabilize the inflation of their economy.
The United States earns about $25 billion per year in seigniorage. Cumulative seigniorage for a twenty year period 1935 through June 1975 was $7,280,639,514.69. In 1994 seigniorage' in various world accounts were; $30 billion in US, $20 billion in Japan and $12 billion in Germany.
The regulation of e trading is also in the lime light since there is the risk of loss of seigniorage when computer money is intended to replace real cash is used. To compensate for the loss regulators are considering the imposition of a tax on the issue of computer money.
Some trivia about seigniorage I found floating around out there in cyberspace:
- The penny has by far the lowest seigniorage (profit) rate of any U.S. coin. Each one cent coin costs four-fifths of a cent to make, netting Uncle Sam just one-fifth of a cent, or 20 percent. The "profit" on a quarter, by comparison, is more than 20 cents.
- Casinos, because they realize their own seigniorage from tokens that are sold by casinos, they are not real interested in using coins, because a lot of folks, as tokens of their visit to casinos, and so forth, take them home, never redeem them for the value they purchased them for. So casinos realize a nice profit, somewhat similar to what the Mint does on its circulating coinage.
As the economy of the world and the internet evolve the concept of seigniorage will continue to be redefined.
Sources
Britannica:
http://www.britannica.com/
New Century of ECO-MONEY:
www.nti.co.jp/~kobakan/contents/newcentury_ofecomoney.html
Regulation of International Electronic Trading :
www.law.usyd.edu.au
Seigniorage:
wfhummel.cnchost.com
US Treasury Opposes Bill on Dollarisation:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=895302