In 1290, Philip IV waged war in France. There was not enough money for financing. The minting of new coins led to greater inflation. To ensure the availability of gold in the treasury, the king robbed the kingdom of the Lombards, took the money of the Jews and confiscated the property of the Templars. All this was done so as not to pay seigniorage - this is a reward for minting coins.
Essence
Seigniorage is the income received from the increase in 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, the mint was engaged in minting coins. 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 the income that was shared between the breaststroke (mint) and the sovereign (feudal lord).
Education
The costs of minting coins of different denominations were practically the same, but the weight fluctuated greatly. 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 us consider in more detail what seigniorage (MIT) is.
This term in translation from Latin means "main", or "senior". In terms of commodity and fiat money, it is calculated in different ways. In the time of Philip IV, service fees consisted of the difference between the cost of coins and silver used to make them.
Modern seigniorage is the difference between the cost of the issue and the face value of new banknotes.
A bit of history
The justice of the peace delivered 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 treasury activity, the Central Bank's debt for 2003 amounted to 5 million euros. But at this point, the lawsuit passed into the jurisdiction of the European Central Bank. With the support of the ADUSBEF Consumer Association, which is involved in banking claims , CB lawyers appealed the previous decision, calling it unfounded.
This example is very revealing. The seigniorage originated in the feudal era, but is still valid today. And today the state makes a profit for issuing banknotes. The problem is that the issue of money is unlimited. When their number begins to exceed the volume of available goods, there is an increase in prices.
Seigniorage and inflation tax
You can increase the money supply by issuing banknotes, issuing money stored on deposit, and acquiring government bonds. In a stable economic environment, the issue of banknotes generates an inflationary tax. An issue reduces the value of existing financial assets. Exchange rates are regulated by the state. The emission center represented by the Central Bank receives all the benefits of an increase in the money supply. The inflation tax is called hidden because people who do not index their income and keep it in the form of deposits in a bank suffer from the issue.
The state receives additional capital, increasing the rate of inflation. The first to notice this was the Americans and created a single emission center - FRZ. The next impetus to establish a monopoly was the Great Depression. Today there is already a scheme in which the government receives money from the market.
Profit from fiat money
If the money is made from material having its own value, the share premium consists of the difference between the cost and the face value of the banknotes (paper or electronic). For example, if the cost of a hundred-dollar bill is 4 cents, then the seigniorage will be 9,996 cents. And this is with a single turn. If you take into account that for every year out of 10 years of a note's life, an average of 4 turns takes place, then the income is very tangible.
The issue of non-cash pays off almost completely. Therefore, some scholars argue that electronic seigniorage is a key factor in the accumulation of wealth in the 21st century.
The profit from issuing banknotes increases if the currency is used abroad. For example, the United States receives greater seigniorage than any other country in the world. The dollar is used in international trade, in the accumulation of reserves. In this case, seigniorage is the income from additional assets that a country can acquire at the expense of its foreign reserves minus investments of non-residents and all administrative expenses.
Information on how much seigniorage is a state secret. And she was not disclosed. Seigniorage in Russia ranges from 15% of GDP. In the Netherlands, it is 0.66%, in the USA - 3%, and in Italy and Greece - more than 10%.
Seigniorage is not only income, but also loss from emissions. The costs of producing small-denominated coins are most often not covered by their nominal value. Therefore, many central banks do not issue them or issue 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 USA, 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%) goes to the payment of dividends, and the rest is credited to budget revenues. For comparison, Bank of Japan private investors receive 4% of share premium. Seigniorage in Russia is divided into two parts. The state receives half, and the second part finances the activities of the Bank of Russia.
In Russia, a total of 15 million notes and 50 million coins were issued. That is, even according to conservative estimates, the income from the emission is significant. Seigniorage can also occur as a result of the subsidence of some withdrawn and unused banknotes from collectors. However, Eurostat has banned Eurozone countries from allocating share premiums to reduce budget deficits. But in countries with hyperinflation, on the contrary, seigniorage is used as one of the sources of income.
Conclusion
Issuing money is a profitable activity. Therefore, only the state has a monopoly on the issue of banknotes. Since the Central Bank is engaged in the implementation of this idea, it writes the financial result of the operation into the lines of its balance sheet. But in Russia, half of the funds go to the state budget.