What is the meaning of the term seigniorage?

Valmiki Bhatnagar, Lucknow

The term belongs to a bygone era when metal currencies, especially those made of precious metals, ruled the roost. The difference between the face value and the metal value of the currency was the profit made by the government and was known as seigniorage.

With paper or polymer currencies replacing metal currencies, seigniorage is a vestige of the past and is heard of when governments of the world produce special commemorative coins more for collectors' or numismatists delight. Gold standard itself is passé with the US aborting its gold exchange standard in 1972. In the event, even paper currencies are not backed by gold which is the essence of gold exchange standard.

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(This article was published on April 17, 2011)
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