In my June 10 publish on the penny, I wrote:
The U.S. authorities makes a reasonably penny (pun meant) on seigniorage. It’s not as a lot because it was as a result of increasingly more individuals use bank cards and even cryptocurrency to purchase items and providers. Nonetheless, it’s a superb quantity.
The most important acquire from seigniorage is on the $100 invoice. Printing one prices the federal authorities simply 9.4 cents. So, when the feds spend this $100, they make a pleasant revenue of $99.90. Not unhealthy. Printing a $1 invoice prices the feds 3.2 cents. So even on a $1 invoice, the feds make 97 cents.
Within the feedback, Rob Rawlings wrote:
I’m a bit confused by the thought of the federal government incomes seigniorage by printing new notes. Comfortable to be corrected if I’m mistaken however don’t they earn seigniorage once they purchase again their very own bonds with newly created digital cash fairly than once they print new paper notes? After they print these new notes (to match an elevated demand to carry them fairly than digital cash) then the prices of printing looks like it might be an actual value.
I agreed that the price of printing can be an actual value however that that value was small relative to the face worth of a $100 invoice and even of a $1 invoice.
Rob responded:
If the newly printed be aware is supplied to a financial institution in change for an equal quantity of base cash, then the place is the “internet seigniorage”? It appears the seigniorage occurred beforehand when the federal government created new base cash by shopping for again bonds.
Someway, in responding, I missed Rob’s second sentence above. I feel that’s true. The underside line is that there’s seigniorage and that he recognized the place it occurs.
I feel I erred in even going within the course of speaking about “internet seigniorage,” as you’ll see once I quote Jeff Hummel beneath.
I introduced in my financial idea and coverage guru, Jeff Hummel, who despatched me the next paragraph:
I feel we simply have a definitional distinction right here. If you wish to take a look at internet seigniorage as you outline it, that’s tremendous and generally informative. However what I feel is the usual method to consider seigniorage is as a tax (a tax on actual money balances), analogous to specific taxes and authorities borrowing, the opposite two essential methods governments generate income. Each of these have their related prices of assortment that you would no less than in idea internet out. However regardless of how a authorities creates a brand new greenback and places it into circulation, whether or not with a coin, invoice, or electronically as with non-interest-bearing financial institution reserves, the burden imposed on the federal government’s topics (by way of an eventual discount of actual money balances) remains to be in the end a greenback.
I agree with Jeff. Effectively, nearly. I’m going to be a bit choosy right here and level out that the burden of a tax isn’t (besides within the case of a lump-sum tax) the quantity of income collected. It’s that quantity plus the deadweight loss, on this case, from individuals economizing on their holdings of actual money balances.
It happens me now looking back that some readers may suppose I’m advocating that the federal authorities print extra $100 payments. I’m not.
As an alternative, I’m making a extra modest level, and it’s this. Let’s say that the Federal Reserve has chosen an optimum financial coverage, outlined nonetheless. Scott Sumner could have one definition, John Taylor one other, and so forth. However let’s hypothesize that in selecting this optimum financial coverage, the Fed assumed that there can be no further demand in different international locations for U.S. forex. In different phrases, it assumed that no matter U.S. forex was presently being held overseas, there can be no further demand.
However, it seems, there’s further demand. Then the optimum financial coverage wouldn’t be the one the Fed selected. The optimum coverage can be to print extra $100 payments.
Notice 1: Due to Rob Rawlings for elevating good factors and to Jeff Hummel for serving to me suppose by way of it.
Notice 2: I gave instructions to ChatGPT to attract an image of a $100 invoice with, as a result of whimsy on my half, the scale of Ben Franklin’s head exaggerated. At no matter measurement, I feel Franklin’s expression makes him look a bit like Jack Benny.