Seigniorage
Seigniorage is the income a government or monetary authority earns by issuing money, beyond the cost of producing and distributing it.
Fiat money: Money that has value by government decree or public acceptance rather than a fixed claim on a commodity. Its issuance lets authorities earn seigniorage without redeeming currency for metal.
Inflation tax: The loss in real value of money holdings caused by inflation, which benefits the issuer of money. It describes how inflation can transfer resources to the government that issues currency.
United States dollar: The official currency of the United States and a major currency in international trade and finance. Foreign demand for dollar notes and reserve assets gives the United States seigniorage beyond domestic circulation.
Central bank profit: A central bank’s net earnings after income, expenses, and accounting adjustments. Profit includes asset income and costs, while seigniorage specifically concerns income from money issuance.
Currency in circulation: Banknotes and coins held outside the issuing central bank and government. The outstanding stock of currency helps determine the income from issuing it.
Inflation: A sustained rise in the general price level that reduces money’s purchasing power. Rapid issuance can contribute to inflation and diminish the real value of outstanding currency.
Euro: The common currency used by the member countries of the euro area. Its issuance generates income for the Eurosystem, distributed under shared rules.
Government revenue: Income received by a government, including taxes, fees, and returns on public assets. Seigniorage is one source of public income, distinct from taxation and other revenue.
Monetary base: A central bank’s liabilities consisting mainly of currency in circulation and commercial-bank reserves. Creating base money expands liabilities that can generate seigniorage.
Government budget constraint: The accounting relationship among public spending, revenue, borrowing, and money creation. It shows how seigniorage can help finance a fiscal deficit.