Principles of Seigniorage

Traditionally, the literature on seigniorage has mentioned different concepts of measuring seigniorage, most prominently the monetary concept and the opportunity cost concept. The relationship between different concepts of seigniorage has never been settled clearly. This paper discusses principal aspects of seigniorage and clarifies the relationship between alternative measures of seigniorage. The conclusion is that the opportunity cost concept includes the total amount of seigniorage, whereas the monetary concept is incomplete. However, either concept alone is not very informative, because neither fully reflects all the different aspects of seigniorage. To obtain a precise picture of the seigniorage situation, it is crucial to make a distinction between actual seigniorage and the fund transfer from the central bank to the government.