From: Gary Howland <gary@kampai.euronet.nl>
Date: Sun, 7 Apr 1996 07:54:13 +0800
To: cypherpunks@toad.com
Subject: e$ seigniorage (and is this the cost of untracability?)
Message-ID: <199604061906.VAA16731@kampai.euronet.nl>
MIME-Version: 1.0
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James Gleick wrote:

> Perry E. Metzger wrote:
>
> >James Gleick writes:
> >
> >> Seigniorage is actually the Government's interest income on all the
> >> currency in circulation.
> >
> >Seignorage is neither of these things. It is the difference between
> >the cost of producing a currency token (like a quarter or a dollar
> >bill) and the face value of the token. In essense, its the profit
> >margin on printing or minting money.
>
> You're giving a definition straight from a dictionary--an old one.
> Welcome to the modern world.

I think you're both right - Seignorage is the interest on the difference
between the cost of producing the token and the face value of the token
from the time the token is issued till the time it is redeemed.

In the case of most government issued currencies though, the tokens can
never be redeemed, so the total interest will be equal to the difference
between the cost of manufacture and the face value.

It is interesting to note that casinos could earn seignorage on their chips
in circulation, and issuers of book/record/gift tokens will certainly earn
seignorage on their tokens in circulation, and since these different types
of token money reduce the amount of government currency in circulation,
these earnings will be at the expense of the treasury.


> This is a very real issue. To the extent that electronic money replaces
> currency (reduces the amount in circulation), it will cost the Treasury
> seigniorage--and the government is acutely aware of this.

Sure, and this is equally true of cheques and credit cards replacing
government currency.  As to whether the government is concerned, that is
subject to debate.  If so, why all the government attempts at reducing
cash transactions?

> Whether the beneficiaries are consumers, banks, or other issuers of digital
> cash will depend on the system.

For e-cheque systems, the beneficiaries will be the consumers, in that the
money which was previously in their wallets will now be earning interest in a
bank account (assuming of course that the bank passes this benefit onto the
customer).  In the case of ecash (from DigiCash), however, the withdrawal
of ecash from an account is done some time previous to it being spent and
deposited, therefore the ecash is "in circulation".  In this situation, the
ecash issuer will earn seignorage on all the circulating ecash.

Two questions arise:

    - What will be the typical time between the withdrawal of ecash
	  and it being deposited?

    - Does the untraceability of ecash (of all types) rely on a time delay
      between withdrawal and deposit (I guess it does), and if so, is the
      interest that the consumer inevitably loses (and the ecash issuer gains)
      the price the consumer must pay for untracability of transactions?


Gary
--
pub  1024/C001D00D 1996/01/22  Gary Howland <gary@kampai.euronet.nl>
Key fingerprint =  0C FB 60 61 4D 3B 24 7D  1C 89 1D BE 1F EE 09 06