Re: Seigniorage, Who, What, Why
From: Bill Ryan (william_b_ryan_at_hotmail.com)
Date: 08/18/04
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Date: 18 Aug 2004 07:22:26 -0700
The following is a brief excerpt from an article on
the website of the
Reserve Bank of Australia (RBA), at
http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul97/bu_0797_1.pdf
"When a commercial bank requires additional notes to
meet the needs of its customers it buys those notes
from the RBA. The bank pays for these notes by
providing the RBA with another financial asset - such
as a government security - the value of which is
equal to the face value of the notes. Seigniorage
arises because the cost of producing the notes is
much smaller than the value of the asset received by
the RBA."
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[Reply] In the old days, so the story goes, the King
would take taxes in gold coins, which he would re-
coin at higher face value, thereby gaining
"seigniorage" over and above the taxes he initially
collected, as he spent them into circulation in
payment for whatever King's spend money on. Those
who opposed this practice - that is to say, the
goldsmiths - called it "debasement."
More lately, bank credit became to supplant the
King's coins as the medium of exchange, again, so the
story goes. Before there were checks and their
electronic equivalent, there were printed banknotes
that were physically traded from person to person.
The King once tried to get into the game by printing
and spending his own notes. But the banks shot him
down by refusing to accept them for deposit or
payment of debt to the banks despite the legal tender
law (the American experience repeated throughout the
world).
Now, the mouthpieces for the banks - especially the
Moslerists - are insisting that bank credit is "fiat"
money (like Lincoln's Greenbacks were intended to be
- they do look like the Greenbacks), and that the
benefits accrue to the King (in his position as
representative and defender of the public against
special interests) by the issuance thereof, exactly
as if the King printed and spent his own money,
himself, by and for the benefit of his people, of
course.
Look at the statement above presented to us by the
Moslerist groupie Hummel in support of his argument.
Yes, it is "similar" to the statement at the Bank of
Canada site, and just as erroneous. Might we not
conclude he hasn't found anything "similar" at the
Federal Reserve - the dog that didn't bark? Perhaps
the Fed's Webmaster is a bit more competent than his
colleague in Australia, not to let sophomoric crap on
his site.
It is the opening paragraph of the document. The
second sentence of that opening paragraph is patently
false: "The bank pays for these notes by providing
the RBA with another financial asset - such as a
government security - the value of which is equal to
the face value of the notes."
The writer immediately appends this "clarifying"
footnote: "More precisely, the bank pays in Exchange
Settlement funds and the RBA uses those funds to buy
government securities."
Yes, the RBA debits the bank's Exchange Settlement
funds account. But the second clause in this
sentence in clarification is mere unsupported
assertion to make the Moslerist case, that the RBA
"uses those funds to buy government securities."
Now, there is no doubt that the RBA purchases
government securities. There is no evidence
whatsoever that there is a one to one relationship
between debits to member banks' settlement accounts
in payment from RBA notes, and the purchase of
securities. Indeed, it is not possible to
demonstrate such a relationship empirically. It is
possible to do so only through tortured and
convoluted logic.
All that has really happened when a member bank
"purchases" RBA notes is that one form of central
bank credit (settlement credits, clearing deposits,
or "high powered" money) is exchanged for another
form of central bank credit (RBA notes).
Whether or not the central bank "rebates" to the
government some of its non-audited and self-
calculated "profit" is an entirely different matter.
The "profit" that is "rebated" is derived from the
entirety of its operations.
Exactly as if a MacDonald's franchise were "owned" by
government, with its "profit" rebated to government.
If you want to call MacDonald's profits
"seigniorage," fine. You should not however fool
yourself into thinking it is anything but an
inversion of language; in the case of banking, an
attempt at subterfuge, with no relationship to the
historical meaning of the word. "Newspeak," as
Orwell put it. See:
http://www.geocities.com/socredus/compendium/orwell.txt
The central bank is one bank in a system with many
banks, in a financial sector with many firms, foreign
and domestic. Only a small fraction of outstanding
federal debt obligations are held in the portfolio of
the central bank.
Even on that small fraction, "profits" are channeled
to Wall Street through the churning of the central
bank's portfolio, not one penny of which being
"rebated." See:
http://www.geocities.com/socredus/friedman-81.txt
-
William F Hummel <wfhummel@comcast.net> wrote in message news:<p0i4i0hv5iea1fp4e31eh6gugq71kqa4j2@4ax.com>...
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