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Definition of 'Seigniorage'

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Seigniorage is the profit that a government makes from issuing currency. It is the difference between the face value of a coin or banknote and the cost of producing it.

The term "seigniorage" comes from the Latin word "seignioratus," which means "sovereignty." In the Middle Ages, kings and queens had the exclusive right to mint coins. They would sell these coins to the public at a higher price than it cost to produce them, making a profit in the process.

Today, governments still make a profit from issuing currency, but it is not as significant as it was in the past. This is because the cost of producing coins and banknotes is relatively low.

Seigniorage is an important source of revenue for governments, especially for those that do not have a lot of other sources of income. For example, the government of Zimbabwe makes a significant amount of money from seigniorage, as its currency is very unstable and the cost of producing new notes is low.

Seigniorage can also be used to finance government spending. For example, the government of the United States can print new money to pay for its expenses. However, this can lead to inflation, which is a decrease in the value of money.

Overall, seigniorage is a complex issue with both positive and negative aspects. It is important to understand the pros and cons of seigniorage before making a judgment about whether it is a good or bad thing.

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