What is Seigniorage?

>> March 26, 2010


Seigniorage is part of public finance and government's meagre earning source like income tax and VAT. If we have to define seigniorage, we can say,"Seigniorage is earning of government for issuing new notes."

Explanation

# Case One
Suppose Govt. of India issued Rs. 100000 new notes and it was given for purchasing Gold of any other company. After one year, govt. of India sells this Gold and receives Rs. 200000 due to inflation and increasing the price of gold. Then Rs. 100000 is seigniorage. In seigniorage, govt. receives profit due to decreasing the value of currency.

Formula of Calculating Seigniorage

= Net profit on producing of new notes and coins.

# Case Second

Suppose Govt. of India produced  Rs. 500 one note and its cost for printing was just Rs. 100. If govt. of India pays Rs. 500 for repayment of his loan, then  Rs. 400 net profit on producting of new note will be the seigniorage of govt. of India.





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