Seigniorage Effect
The seigniorage effect refers to the economic benefit enjoyed by a key currency country, that is, a country that holds an international currency. By using its status as a key currency country, it prints money and endlessly covers external deficits through the creation of new credit.
In other words, when currency is issued, profit equal to the exchange value minus the issuance cost (minting profit) arises, and among these, the benefit enjoyed by a key currency country—that is, a country holding an international currency—is called the seigniorage effect.
This term originally comes from feudal lords (seignior in French) who held exclusive monopoly rights over coinage within their own castles during the medieval period; they mixed impurities into gold coins and circulated them to cover their finances.
It is also called coinage profit (鑄造差益) or currency issuance profit.
That is, the manufacturing cost is lower than the face value of actual money, and profit equal to the difference is generated.
Meanwhile, before World War II, the United Kingdom (pound sterling) served as the key currency country, but it ceded that status to the United States; today only the United States enjoys the seigniorage effect as the key currency country. (Reporter Jang Sun-hwan, Industry & Securities Department)
Topics: Economics,Credit Money,Key currency
Category: Wiki/Economy