SEIGNORAGE AND THE PRIVILEGE OF ISSUING AND STAMPING MONEY

[1]

Traditional Seignorage in General

The right to coin money and stamp it, as seen in ancient times, belongs today to the state. It is usually included in their Constitution. To give two examples, let's quote those of the USA and UK. For the USA, Section 8 of the Constitution provides for the power in paragraph 5: “To coin money, regulate the value thereof, and of foreign coins and fix the standards of weight and measures.” In the UK, the 1706 Treaty of the Union, which merged the Kingdom of Scotland and of Great Britain in article 16, paragraph 5 unified money. With additional legal texts, such as the US legal tender act of 1862, the issuance of paper money was authorized but had actually already happened much before or at the same time as the coinage privilege. The constitutionality of money issuance combined with the right to levy taxes brought something new and necessary – generality and the legal tender concept. Governmental money has to be accepted by citizens and legal tender may be used to pay taxes. Between citizens, the nation's currency (from the word “curraunt” – circulating) cannot be refused as a medium of exchange. A nation's currency becomes a medium for its holder to satisfy an obligation for a value struck on a coin or stamped on a paper bill. The right for the sovereign to play on values is derived from this set-up, and is a very controversial topic of monetary policy that grounded, after financial failures, the stream of ideas pleading for a return to the gold standard.

With the absence of gold as a monetary reference and given an internationally adopted philosophy that opposes intervention on currency exchange markets, the monetary privilege of seignorage has all but disappeared – notwithstanding its ancient roots. Traditional seignorage persists in a tiny niche area, where it is invoked by former minting administrations for the sale of collection coinage to the public (essentially pocket money without monetary effect). Historically, however, any effective impact of seignorage had already dissipated when Germany and France went to war, and when the gold reference was abandoned. In prior centuries, however, seignorage provided a useful tool for governments, due to the difference between the intrinsic metal value of the struck coins and their face value – the resulting margin allowed for generation of a profit that could be used to finance government operations. This historical anachronism constitutes one reason why, in the wake of the French Revolution, Jefferson and other like-minded statesmen opposed to autocracy were equally ill-inclined to embrace the concept of a seignorage-mandated central bank that could yield institutional power outside the purview and even support of an elected Congress.

  • [1] See the Glossary for stamping being distinguished from sampling.
 
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