If cash facilitates illegal activities and tax evasion, it might, in theory, generate expenses and tax losses that could significantly offset any seigniorage
14) For this discussion, the interest saving on the share of federal government liabilities that are notes and coins is the most pertinent measure of seigniorage
One of these was the desire for seigniorage
The mathematical expression for seigniorage
can be rewritten as follows:
Lopez (2000) following Eckstein and Leiderman (1992) inter-temporal model studies the seigniorage
behaviour and welfare consequences of different inflation rates in Columbia.
For instance, in Schreft and Smith (1997), a higher rate of money creation (steady-state inflation) raises seigniorage
revenue, which enables the government to increase its indebtedness.
With fiscal dominance, the fiscal authority independently sets the future budget path, and the monetary authority then has to adjust seigniorage
to finance any difference between planned future revenues from bond sales and the public demand for these bonds.
But now the seigniorage
that government gains from creating bank reserves will be much reduced, if not entirely eliminated.
This period can be called the "debt overhang" period and is characterized by seigniorage
financing of large fiscal deficits (e.
This is accomplished in the context of a two-period overlapping generations model with multiple assets and an after-tax government deficit that must be financed by a combination of debt and seigniorage
4) Thus, seigniorage
for notes accrues initially to the Federal Reserve.
The central bank gets its seigniorage
revenue, which is essential to its existence.