I misdirected this yesterday. Yes, its relevant: it answers the contention that ecash somehow lowers government seignorage income. ------- Forwarded Message To: James Gleick <gleick@around.com> cc: cypherpunk@toad.com Subject: Re: e$ Signorage From: "Perry E. Metzger" <perry@jekyll.piermont.com> James Gleick writes:
It's not obvious, but it's true, that the Fed collects the "float" on dollar bills you carry in your pocket,
Oh, really? From whom? First I've heard of this.
Then you're learning something new.
Oh, really? Don't teach grampaw to suck eggs.
On the contrary. The Federal Reserve holds Government securities corresponding to the dollar value of currency in circulation.
Ah, no. Sorry. The Fed does indeed monetize debt, but 1) that isn't related to seignorage, and 2) all new money is monetized debt, and it makes no difference whether it is held in paper or bank accounts or anything else.
It earns interest income on this amount, and returns this income to the Treasury. This is called seigniorage. It amounts this year to something over $20 billion. 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. Whether the beneficiaries are consumers, banks, or other issuers of digital cash will depend on the system.
Again, you really don't know what you are talking about. The vast bulk of the money in the field is not currency. Most of it is in the form of bank deposits and is circulated through bank mechanisms like checks and such. When the Fed wants to expand the money supply, it buys government debt on the open market, paying for it with nothing at all other than changing numbers in the Fed's computers. This is how debt is monetized. The bulk of that money never becomes dollar bills, and whether it is circulated via checks or ecash or direct deposit or whatever makes no difference to the amount of fake interest earned. I say "fake interest" because it isn't real income to the government at all. The amount of currency in circulation is dependant purely on demand by consumers, via banks, for currency. When banks want dollar bills, they ask the Fed -- they hand the fed electronic money and the fed gives them back dollar bills. The amount of currency, however, has nothing to do with the amount of bonds being held -- whether the monetized debt is held in bank accounts, in dollar bills, or in ecash makes absolutely no difference. Again, you just don't know what you are talking about. E-Cash has no impact on the fake interest earned by the fed, which is not seignorage to begin with. Perry ------- End of Forwarded Message