what is seigniorage 
seigniorage is the difference between the face value of money such as a 10 bill or a quarter coin and the cost to produce it if the seigniorage is positive the government will make a profit a negative seigniorage will result in a loss understanding seigniorageseigniorage is counted as revenue for a government when the money it creates is worth more than it costs to produce this revenue is often used by governments to finance portions of their expenditures without having to collect taxes if for example it costs the u s government five cents to produce 1 the seigniorage is 95 cents or the difference between the two amounts seigniorage gives a country the potential to turn a profit when it produces money while the definition of seigniorage is most often the difference between the cost of printing new currency and the face value of that same currency it is also the number of goods or services a government can acquire through the printing of new notes in some situations the production of currency can result in a loss instead of a gain for the government creating the currency this loss is more commonly experienced in the production of coins because the metal used to produce coins has inherent value this value often called the melt value may be higher than the denomination it originally represented or when combined with production costs may result in a loss for example the u s penny with a face value of one cent cost 3 07 cents to produce in 2023 the eighteenth year in a row that production costs exceeded the penny s face value over time the melt value can also change as market demands shift and it can potentially lead to the value of the metal being worth more than the face value of the currency one example is silver coins such as the u s silver quarter and the silver dime real world example of seignioragebased on anticipated demand for new currency the federal reserve places an order annually with the department of the treasury s bureau of engraving and printing and pays for production costs the fed provides detailed information on each currency denomination and the cost to produce it in 2023 for example it cost 5 3 cents to produce a 20 bill and 8 6 cents to produce a 100 bill the u s mint is responsible for coin production which is influenced by the number of requested federal reserve bank orders the federal reserve then purchases the coins at face value the federal reserve s currency operating budget in 2024 special considerationswhile the basic principle behind seigniorage suggests that a country can profit from the production of new bills there can be other factors affecting the entire transaction if the federal reserve agrees to increase the number of dollars available within the u s economy it will purchase a treasury bill t bill in exchange for permitting the production of more dollars while the government may appear to profit when the cost of production is lower than the face value of the bills it is important to note that treasury bills require interest payments to the federal reserve in addition to the original investment placed when the treasury bill was purchased seigniorage and gresham s lawgresham s law is a monetary principle stating that bad money drives out good gresham s law was originally based on the composition of minted coins and the value of the precious metals used in them in other words if a gold coin is worth 5 and a silver coin is worth 0 50 people will hoard the gold coin and instead exchange 10 silver coins as a result the gold coins drop out of circulation and thus the bad money the silver drives out the good the gold this becomes a form of effective seigniorage since the gold becomes worth more even though its face value is the same as 10 silver coins however since the abandonment of metallic currency standards the theory has been applied to the relative stability of different currencies value in global markets 