No Subject

Perry E. Metzger wrote:
>
>James Gleick writes:
>> 
>> Seigniorage is actually the Government's interest income on all the
>> currency in circulation.
>
>Seignorage is neither of these things. It is the difference between
>the cost of producing a currency token (like a quarter or a dollar
>bill) and the face value of the token. In essense, its the profit
>margin on printing or minting money.

You're giving a definition straight from a dictionary--an old one. Welcome to the modern world.

>> It's not obvious, but it's true, that the Fed collects the "float"
>> on dollar bills you carry in your pocket,
>
>Oh, really? From whom? First I've heard of this.

Then you're learning something new.

>Now, it is indeed true that the Fed holds large numbers of government
>bonds and theoretically earns interest on them, and that banks in a
>free banking system do indeed loan out the money that backs their
>notes. However, the fed has no mechanism to earn interest on dollar
>bills, nor, in fact, does it need to.

On the contrary. The Federal Reserve holds Government securities corresponding to the dollar value of currency in circulation. It earns interest income on this amount, and returns this income to the Treasury. This is called seigniorage. It amounts this year to something over $20 billion.

This is a very real issue. To the extent that electronic money replaces currency (reduces the amount in circulation), it will cost the Treasury seigniorage--and the Government is acutely aware of this. Whether the beneficiaries are consumers, banks, or other issuers of digital cash will depend on the system. 


--
James Gleick
gleick@around.com
http://www.around.com

Incidently....

James Gleick writes:
> >Seignorage is neither of these things. It is the difference between
> >the cost of producing a currency token (like a quarter or a dollar
> >bill) and the face value of the token. In essense, its the profit
> >margin on printing or minting money.
> 
> You're giving a definition straight from a dictionary--an old
> one. Welcome to the modern world.

The definition I use is *still* totally current. One concern when
doing things like switching from dollar bills to dollar coins or
altering printing processes in paper money is a change in seignorage
because of a change in production cost of the currency tokens.

Perry

JG
>This is a very real issue. To the extent that electronic money replaces 
>currency (reduces the amount in circulation), it will cost the Treasury 
>seigniorage--and the Government is acutely aware of this. Whether the 
>beneficiaries are consumers, banks, or other issuers of digital cash will 
>depend on the system. 

pardon me but just for fun, would you mind debunking some conspiracy
theories on this subject, since you seem to understand our system?
there are a lot of people now claiming
that the federal reserve is a system designed to slowly cause the
entire US economy to go into debt to it via charging interest on
the loaning of paper money. how do you address this?

to me the idea that cybercurrency might escape possible manipulations
and machinations that are happening in the real world currency
markets is quite liberating. I would also expect to see some
powerful interests try to fight it for this reason.

p.s. if you are really you, thought you made some great points
about the Unibomber on Peter Lawrence, and I also love your
two books, Chaos and on Feynmann.  keep up the great work.