decreased, the person receives less than one ounce of gold and seigniorage occurred. If the value of the currency relative to gold has increased, the person receives more than one ounce of gold and demurrage occurred; seigniorage did not occur. Ordinary seigniorage Ordinarily, seigniorage is an interest-free loan (of gold, for example) to the issuer of the coin or banknote. When the currency is worn out the issuer buys it back at face value, balancing the revenue received when it was put into circulation without any additional amount for the interest value of what the issuer received. Historically, seigniorage was the profit resulting from producing coins. Silver and gold were mixed with base metals to make durable coins. The British pound sterling was 92.5 percent silver; the base metal added (and the pure silver retained by the government mint) was, less costs, the profit – the seigniorage. Before 1933, United States gold coins were 90 percent gold and 10 percent copper. To make up for the lack of gold, the coins were over-weighted. A one-ounce Gold American Eagle will have as much of the alloy as needed to contain a total of one ounce of gold (which will be over one ounce). Seigniorage is earned by selling the coins above the melt value in exchange for guaranteeing the weight of the coin. Under the rules governing the monetary operations of major central banks (including the Federal Reserve), seigniorage on banknotes is the interest payments received by central banks on the total amount of currency issued. This usually takes the form of interest payments on treasury bonds purchased by central banks, putting more money into circulation. If the currency is collected, or is otherwise taken permanently out of circulation, the currency is never returned to the central bank; the issuer of the currency keeps the seigniorage profit by not having to buy back worn-out currency at face value. Solvency constraints of central banks The solvency constraint of a standard central bank requires that the present discounted value of its net non-monetary liabilities (separate from monetary liabilities accrued through seigniorage attempts) be zero or negative in the long run. Its monetary liabilities are liabilities in name only, since they are irredeemable. The holder of base money cannot insist on the redemption of a given amount into anything other than the same amount of itself, unless the holder of the base money is