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Dec 15Doug Smith

Buzzword of the Week: Seigniorage

Dec 15Doug Smith

When I first found this buzzword in Investopedia, I thought it might refer to the European debt crisis in Spain. I was wrong. Instead, I found it was a real word. Seigniorage is the difference between the value of money and the cost to produce it – in other words, the economic cost of producing a currency within a given economy or country. If the seigniorage is positive, then the government will make an economic profit; a negative seigniorage will result in an economic loss.

Seigniorage may be counted as revenue for a government when the money that is created is worth more than it costs to produce it. This revenue is often used by governments to finance a portion of their expenditures without having to collect taxes. If, for example, it costs the U.S. government $0.05 to produce a $1 bill, the seigniorage is $0.95, or the difference between the two amounts.

 

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