Seigniorage

SEIGNIORAGE, the due levied by the authority that possesses the right of coining on the metal that it manufactures into coin. The term " brassage " has been used to describe this due, when confined to the mere cost of the process; the wider term " seigniorage " being employed when the charge is so raised as to become a profit to the imposer. The exercise of the right of seigniorage has been the instrument by which most of the debasements of currency have been carried out. Under feudalism, especially in France, the chief nobles had this prerogative. In the modern state it is reserved for the sovereign authority. Most countries adopt a moderate seigniorage charge. Thus the fundamental currency law of France (1803) provides that " only the expense of coining " shall be charged. At present this due is 6 fr. 70 c. per kilo, of gold fa fine, or 0-24%. The charge by the same law on silver was 3 fr. per kilo, or 1-66%. The limitation on the coinage of silver in practically all countries has made the seigniorage on that metal very heavy. The policy of England in respect to gold has been peculiar. Since 1664 it has been freed from any charge, though the delay in return amounts to a small due. In consequence of this gratuitous coinage, English gold has been regarded as equivalent to bullion, and exchange fluctuations have been reduced. The policy was severely criticized by Adam Smith, and it does in fact amount to a bounty on the coinage of gold. The amount is, however, too insignificant to deserve attention, especially as there are compensating gains. The employment of a seigniorage of about i% on the " sovereign " was suggested by the proceedings of the Paris Monetary Conference of 1867, in order to bring about an assimilation of English and French money. By reducing the amount of gold in the sovereign to that in the proposed 25-franc piece an exact par would have been created, and, so it was hoped, the English currency and accounts need have undergone no change. The scheme was, however, rejected by a Royal Commission on the ground that an adjustment of obligations would be required.

The theory of the effects that a seigniorage produces have been discussed at length. The definitive results obtained may be briefly stated as follows: (i) A seigniorage charge is the same as a debasement, but its evil effect may be avoided by limiting the amount of coin issued. (2) Seigniorage operates as a tax on the metal subject to it, and this tax tends ultimately to fall on the producers, or rather on the rent obtained through the production. A heavy seigniorage on gold would tend to lower the profits derived from the gold mines of the world, and might even compel the abandonment of the least productive ones.

See MONEY, MONETARY CONFERENCES, and TOKEN MONEY.

(C. F. B.)