Claim: Advanced country governments don’t need the seignorage. The U.S. government doesn’t rely on printing money to pay its bills, so they’d be more or less indifferent
Source: Starts at 29:54 - "Debating Crypto: Katie Haun vs. Paul Krugman" - https://www.youtube.com/watch?v=gOXYbmKRTsQ
Question from audience: "What is your take on the positions that governments will take? Will they promote the existence of this new way of trading to make the old style more efficient or will they try to protect the establishment and hinder the use of these new technologies?"
Paul Krugman’s response: “I’m having trouble with the premise that the old style was inefficient. For people who are unbanked and so on this is an interesting question. For middle class individuals, for corporations, the system in fact works as it is. They don’t need a new means of payment. What governments need to do is crack down on fraud and if, I don’t know, if I am all wrong and crypto really proves to be a better way to do transactions, I suspect the advanced country governments won’t have a problem with it - the financial institutions will find ways to thrive in that environment and advanced country governments don’t need the seignorage. The U.S. government doesn’t rely on printing money to pay its bills, so they’d be more or less indifferent. I don’t actually believe we are at the dawn of a new age. I believe that 15 years from now it will look a lot like pets.com.”
Evidence/Argument: I put the rest of his response above, but this argument focuses on the bold and underlined portion - that “advanced country governments don’t need seignorage and don’t rely on printing money to pay its bills.” It would be interesting to see data on other governments, but this focuses on the U.S. There’s a bunch of quotes below that provide the counterargument - but it’s long, so I’ve underlined/bolded the important parts.
Source A: St. Louis Fed: https://files.stlouisfed.org/files/htdocs/publications/review/92/03/Seigniorage_Mar_Apr1992.pdf
"seigniorage increases as inflation rises until the inflation rate reaches about 7 percent; thereafter, inflation and seigniorage are inversely related…Monetary seigniorage (sc) is defined as the net change in base money outstanding (AB), deflated by the consumer price level"
"Figure 1 shows the magnitudes of the extended monetary seigniorage (s,) and the monetary authorities’ operating costs (se) as measured in 1982/84 dollars, from 1951 to 1990. During the past four decades, the annual real value of extended monetary seigniorage has generally risen, while ranging over that period from —$6 billion in 1954 to $31 billion in 1986.
As figure 1 indicates, a comparatively small portion of this amount—only about 7 percent on average—was used to cover the costs of producing the monetary base by the monetary authorities. Consequently, the government’s production of base money has resulted in sizable and rising net profits, which are equal to the difference between the two curves in figure 1. "
" The government’s monopoly in issuing base money yields profits that facilitate its fiscal finance… "
"While the continuous flow of fiscal seigniorage helps to finance the federal budget, it is a fairly small source of funds. On average, it contributed about 2 percent to the finance of federal expenditures over the past 40 years. "
"In the monetary economics literature, seigniorage is often discussed and analyzed in terms of an “inflation tax,” a term that was coined by Milton Friedman (1953) . This association reflects the fact that, other things the same, a nation’s monetary authorities can increase monetary seigniorage by increasing the supply of base money relative to its demand. Because the resulting rising price level reduces the real value of the public’s base money holdings, the public will demand more nominal base money balances to make up for the price-level-induced decline in its real cash balances. As a result, the price rise produces an increase in monetary seigniorage."
Source B: Dallas Fed: https://www.dallasfed.org/~/media/documents/research/er/1998/er9803b.pdf
"First, how much do countries rely on money creation as a source of revenue? The answer to this question gives some idea of the size of the seigniorage revenue “problem.” For most of the countries, money creation accounts for less than 2 percent of real GDP. The evidence indicates that seigniorage revenue is not the primary source of revenue for a government, but neither is it quantitatively insignificant. "
"Overall, the evidence suggests that there is a systematic, positive relationship between a country’s monetary policy settings and its reliance on seigniorage revenue. Thus, countries with higher monetary policy settings tend to rely more heavily on seigniorage. But compared with less financially sophisticated countries, the more financially sophisticated countries tend to rely on seigniorage revenue at an increasing rate. "
"The main finding in this article is that there is a systematic, positive relationship between a country’s monetary policy settings and its reliance on seigniorage revenue. Thus, countries that rely most heavily on seigniorage revenue tend to have the highest values of the monetary policy measure. There is some additional evidence that the relationship between the monetary policy variable and the seigniorage rate is nonlinear for OECD countries. Here, OECD membership is used as a proxy for financial sophistication. The evidence suggests that OECD countries rely on seigniorage revenue at an increasing rate for given changes in the monetary policy variable. "
Source C: https://www.econlib.org/archives/2013/10/the_relative_un.html
Source D: https://economics.stackexchange.com/questions/16075/usa-seigniorage-revenue
Odd note: Wiki’s reference that US Gov makes 25B / year through seignorage has a link to Congress’s website that’s been taken down
Some quick math:
Federal revenue (2017): $3,440 billion
Estimated annual seignorage: ~$25 billion (at a minimum, depends on calculation methodology)
% of budget from seignorage: ~0.72%
Status: Rejected (partially)
Clearly advanced countries can make ~1-2% of their TOTAL REVENUE through seignorage. In times of distress (post-WWII), this was higher. I think advanced country governments would care if 1-2% of their total revenue annually was taken away.