Seigniorage
Also called: Seigniorage revenue · Topic: Money: From Barter to Digital Currency · NCERT: Beyond NCERT
Meaning
Seigniorage is the profit a central bank or government earns from issuing money. Put simply, it is the face value of the money minus what it costs to produce. The profit exists because fiat money is worth far more in the market than the paper or metal it is made of. For the RBI, seigniorage comes from the interest it earns on the assets it holds against its note liabilities. This income feeds into the surplus the RBI transfers to the government.
Example
Printing a ₹500 note costs only a few rupees, but the note buys ₹500 worth of goods. The gap between the two is seigniorage. The RBI's own printing costs still run to several thousand crore rupees a year, because it prints so many notes.
Don't confuse with
- Printing cost of currency: this is the RBI's expense on paper, ink and presses. Seigniorage is the gain that remains after this cost is taken away from face value.