Seigniorage /ˈseɪnjərɪdʒ/, also spelled seignorage or seigneurage (from Old French seigneuriage “right of the lord (seigneur) to mint money”), is the difference between the value of money and the cost to produce and distribute it. The term can be applied in the following ways:
- Seigniorage derived from specie—metal coins—is a tax, added to the total price of a coin (metal content and production costs), that a customer of the mint had to pay to the mint, and that was sent to the sovereign of the political area.
- Seigniorage derived from notes is more indirect, being the difference between interest earned on securities acquired in exchange for bank notes and the costs of producing and distributing those notes.
The term also applies to monetary seignorage, where sovereign-issued securities are exchanged for newly minted bank notes by a central bank, thus allowing the sovereign to ‘borrow’ without needing to repay. However, monetary seignorage refers to the sovereign revenue obtained through routine debt monetization, including expanding the money supply during GDP growth and meeting yearly inflation targets.
Seigniorage is a convenient source of revenue for some governments. By providing the government with increased purchasing power at the expense of the public’s purchasing power, it imposes what is metaphorically known as an inflation tax on the public.
The ability to absorb ever-increasing amounts of goods and services from other countries without having to provide anything of equivalent value in return. In turn, it is this privilege which helps to finance the staggering costs of the US military machine, now running at over 600 billion per year.
For the US, the stakes couldn’t be higher. In 2012, Iran began to accept yuan for its oil and gas payments, followed by Russia in 2015. If this takes off, this could literally spell the beginning of the end of US global power. The dollar is the world’s leading reserve currency, in the main, only because oil is currently traded in dollars. Countries seeking foreign exchange reserves as insurance against crises within their own currencies tend to look to the dollar precisely because it is effectively ‘convertible’ into oil, the world’s number one commodity.
This whole system falls apart once other countries stop using the dollar as their prime reserve currency. And they stop doing this once oil stops being traded in dollars. This is one reason why the US was so keen for Saddam Hussein to go after he began trading Iraqi oil in Euro.
Hence the urgency to pre-emptively punish Qatar for its likely move towards a joint venture with Iran to supply Asia with LNG priced in yuan.