Seignorage, Exchange Rate, and Monetary Policy

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Seignorage, Exchange Rate, and Monetary Policy

• Flexible Exchange Rates and Prices

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seigniorage

• Seigniorage The revenue from issuing currency.
• Net seigniorage is the difference between the
  cost of putting money into circulation and the
  value of the goods the money will buy. One way to
  think of seigniorage is as a flow of revenue over
  time. Notes and coins pay no interest. Somebody
  who holds notes could instead buy a bond and earn
  interest on it. By holding notes it is as if he
  is giving the issuing government an interest-free
  loan.

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US Seigniorage

• For the U.S. government, net seigniorage from
  issuing dollars, as measured by the flow of
  payments the Federal Reserve System makes to the
  Treasury, is roughly 25 billion a year. That is
  a large amount in dollar terms, but it is less
  than 1.5 percent of total federal government
  revenue and only about 0.3 percent of the GDP of
  the United States. When foreigners hold dollar
  notes, they create seigniorage for the U.S.
  government. As was mentioned, foreigners are
  estimated to hold 55 to 70 percent of the total
  value dollar notes in circulation, which implies
  that they account for perhaps 15 billion a year
  of the seigniorage from issuing dollars.

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