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What is Seigniorage and Who Should Get It ?

What is Seigniorage and Who Should Get It ?. 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. What is Seigniorage?.

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What is Seigniorage and Who Should Get It ?

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  1. What is Seigniorage and Who Should Get It?

  2. 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

  3. 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. • 1891Daily News 6 Nov. 3/5 Any profit which the State gets from note circulation, seigneurage, and the like.

  4. 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

  5. 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.

  6. 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 Guarantee

  7. 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 7

  8. Sharing the Seigniorage Could Conceivably Prevent a Run on Dollars • 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

  9. Should Seigniorage Be Used to Finance Infrastructure or other Projects? • 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

  10. Conclusion • Think about how you would like to recommend that seigniorage be shared • Equal sharing has a lot to recommend it

  11. Thank you! Nicolaus Tideman Virginia Tech ntideman@vt.edu

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