THE STOCK OF MONEY, TODAY AND AFTER SEIGNIORAGE REFORM

Which of the wide range of categories of money defined in existing monetary statistics should be regarded as belonging to the circulating stock of money? How much money exists today, and how much would exist after seigniorage reform? How much is the average annual growth of the stock of money, and how much seigniorage revenue can be expected from it?

In the context of seigniorage reform, these are questions which require answers. This Appendix, supported by the definitions and statistics in Tables 1-4, aims to give them.

A.1 Defining and Measuring Today’s Money Stock

Our understanding of the stock of money comes close to the notion of “means of payment”. Means of payment should not, of course, be confused with methods of payment or technical aids to payment such as cheques, credit cards, etc. These documents or methods of payment just represent orders for drawing on money which exists in current accounts. They represent a claim to be paid money or a liability to pay money rather than being themselves a means of payment in the sense of money itself.

To most people today the obvious types of money are still coins and banknotes. But it is possible to imagine that within a generation or so the use of cash may be almost completely replaced by “electronic cash”, i.e. “bits” carried around on microchips or magnetic strips on plastic cards, and by instant transfer of funds remotely transmitted from one bank account to another with the help of “smart cards” and similar devices.

Our present situation can already be seen as a transitional stage to such a completely non-cash money future. In former times, cash meant coins made of gold and silver, the minor ones of copper. Today, the coins in circulation are made of non-precious metal alloys; banknotes, in wider circulation for the past 300 years, are made of paper; and the Mint could easily decide to produce plastic coin.

It is apparent from this that even cash has a “non-cash” nature. Detached step by step from material things of value, money has disclosed its purely informational nature. The units of money in circulation represent economic value. Money can be related to any item subject to economic valuation (pricing) and transaction (exchange). Hence the dual economic function of money: as units of account, the units of money can serve for counting or measuring economic value; and, as means of payment, they can serve for carrying out transactions by transferring units of money in exchange for items bought. What is usually thought of as their third function - as a “store of value” - refers to the fact that they can be saved as means of payment for use at a later date.

Seen like this, money is a functional tool consisting of value- informational units with a general capacity to match the values of all kinds of goods and services in the real world. It is increasingly questionable whether money can still be regarded as the same kind of store of value as gold, diamonds and other precious stones and metals which were the treasures of former times. Money may help to represent value, but it does not have intrinsic value of its own. We hesitate to say money is worthless or without value, because money gives purchasing power. That purchasing power, however, is not an immanent property of money; it relates to prices of goods, services, labour or capital of any kind.

Purchasing power is directly linked to the prices which are paid with money. “Stable currency” or “stable money” would be meaningless terms unless they referred to stable prices. Prices express the economic value of tangibles and intangibles of any kind. The question where the value of these things comes from, how it is determined by whom, remains unsettled. William Petty laid the foundations of labour theory of value by saying, skilful work is the father, Earth is the mother of all economic value. However this may be, money does not have value of its own; money doesn’t create value; money mediates the exchange of economic values.

Given the informational nature of money, it is not surprising to find differences over what is defined as money. There is ongoing expert dispute over this, dating back at least to the 1840s’ controversy between the currency school and the banking school. Today, in the advanced conditions of the Information Age, the potential for confusion is all the greater.

For example, consider a traditional savings account, perhaps documented in an old-fashioned savings booklet. People’s understanding of savings quite often represents it as a sort of piggy bank. We think we have put money into the savings account, and there it is, being stored until we take it out. We would probably say, “I have some money in this account”. In reality, things are different.

A first approximation could be to say we have lent the bank our savings. The money is not in the account, but the bank is working with it. The bank may in turn have lent our money to someone else, so that the money keeps circulating, while the credit note in the savings booklet confirms our claim to be paid back that money. Thus, such a savings deposit is clearly an asset, but it is not money instantly available for transactional purposes. One cannot usually pay with a savings booklet.

This first approximation, realistic as it may seem to be, is not really correct. Nowadays, most people don’t usually deposit cash directly into a savings account. We usually transform a sight deposit into a savings deposit, by transferring it from our current account into our savings account. By doing so, seen from the bank’s point of view, we convert a very short-term liability of the bank into a somewhat longer-term liability. In other words, we convert sight deposits, which the bank is obliged to pay out any time on demand, into savings deposits, which are only partly payable on demand - the rest not being available until after a several weeks’ or months’ period of notice.

The amount of money available to a bank does not change through any such operation. This is counterintuitive but true. For the most part, under today’s arrangements, banks don’t need as much money as might be supposed. Contrary to what most people think, a bank does not “work with the money” on customers’ accounts, any more than it works with the notes in people’s wallets. A bank works with the cash in its own till and, more importantly, with relatively small amounts of money in its own account with the central bank. Very often banks can settle supposed transfers of money by pure clearance of claims and liabilities among customers’ accounts.

1) or any other material commodity such as land, industrial plants, goods, resources/energy.

2) Accounts with limited or no access. Deposits not available until agreed maturity up to 2 years (time deposits) or redeemable at notice up to three months (traditional savings accounts). Increasingly, however, such accounts offer availability of money any time. Nevertheless such deposits have to be converted into a sight deposit before cashless payments can be carried out.

The banking system is two-tiered. Current accounts of customers are maintained at and managed by a bank, whereas current accounts of banks are maintained and managed at the central bank. Deposits of the banks with the central bank are not actually called sight deposits on current accounts, though that is what they are, but bankers’ deposits on operational accounts, also referred to as operational reserves (called excess reserves outside the UK). These reserves are created by the central bank. They are official central bank money - the official currency of a central bank - like the legal tender it has issued as banknotes.

Banks can also have current accounts with other banks, as customers and partners of each other. The term sight deposit usually only refers to current accounts that customers maintain with a bank (also called demand deposit, checking deposit, or overnight deposit). Sight deposits are created by commercial banks. In that sense, they are a kind of private money, a parallel means of payment which is not strictly “currency” like banknotes and coins, but is denominated in official currency and used as if it were currency.

How then do central banks create operational reserves, and how do banks create sight deposits? Both do it in the same way, by lending money to their customers. They simply write a double entry into the bank’s accounts - one as a credit entry on the asset side, the other one as a debit entry on the liability side. The bank’s credit entry is matched by the customer’s liability to pay interest on the loan and repay it later, while the bank’s debit entry is matched by a credit entry in the customer’s account. The same mechanism is actuated whenever a customer makes use of his or her overdraft facility. The customer gets the money and a debt, whereas the bank has a claim to be paid interest on the debt and be repaid it later, together with a liability to pay the customer the sum of money involved in the overdraft.

Cash = coin + banknotes
M0 = cash + bankers’ operational deposits
M1 = cash + customers’ sight deposits
M2 = M1 + time deposits (up to two years) + savings deposits
M3 = M2 + money market fund shares/units + debt securities (up to 2 years)
M4 = cash + all types of retail and wholesale deposits including building society deposits
M = cash in public circulation + banks’ cash + sight deposits (i.e. all chequeable deposits) + a fraction of bankers’ operational deposits.

This analysis enables us to see, in spite of the complexities, that the stock of money in circulation consists of a cash component and a non-cash component. The cash component is all the coins and banknotes; the noncash component is customers’ sight deposits and banks’ operational deposits. Table 1 (see opposite page) contains a synopsis of such categories.

There are two questions here which are controversial. First, do gold and silver belong to the cash? Second, do banks’ operational deposits belong to the same category as customers’ sight deposits and add to the stock of money?

In legal principle, pure gold and silver continue in most countries to be valid money. If an authorized issuing institution has stamped its seal upon them, they are even recognized as legal tender. So they may for a while still be considered as an asset, a valuable “reserve”, however volatile its value tends to be. In practice and as a matter of fact, gold and silver are no longer used as a means of payment. Accordingly, they are no longer part of the stock of money in circulation.

As regards non-cash, the two-tier banking system comes with a twofold circulation of money: one being the public circulation of sight deposits; the other being the interbank circulation of operational reserves. In terms of set-theory, banks’ operational deposits represent a sub-set of customers’ and banks’ sight deposits. There is some interaction between the two circuits when it comes to settling final payments between banks in money held by the central bank, after all possible clearances (i.e. cancellings out) of sight deposits have been completed within banks and between banks. Nevertheless there is no exchange of units between the two circuits. They don’t mingle with one another at all.

The circulation pattern of cash is different. Coin and notes circulate everywhere, and cash can move from one of these circuits to the other. But it does not play a basic role any more. The time when operational and sight deposits were derivatives of cash ended when the gold standard and the last remnants of gold core currencies were abandoned. That happened between 1931 (in Britain) and 1971 (in the USA). Since then, the relationship between cash and non-cash has been reversed. Basically, now, money is purely informational; it is the kind of non-cash money that takes the form of bankers’ operational deposits and customers’ sight deposits on current accounts. Cash can be withdrawn from these deposits and they may be downloaded on to a cash-card; and cash may be paid into these accounts. But it has now become a secondary, subordinate form of money, with non-cash as the primary, more important form.

The fact that interbank and public circulation do not mingle means that, under the fractional reserve system, operational reserves are not included in the stock of circulating money. The same applies to the cash in the banks’ tills, and also to foreign exchange. If cash or foreign exchange are deposited by a customer, the customer gets a sight deposit in exchange, and that is included in the stock of money. If a bank’s cash comes directly from the central bank, the cash is delivered as a loan granted to the bank by the central bank. So the cash represents central bank money in the interbank circulation.

The official measure of the stock of money in public circulation is captured in the monetary aggregate called M1 (M-1B in America). M1 is made up of cash in public circulation plus sight deposits. It does not include operational deposits, nor the cash in the banks’ tills, and for the same reason foreign exchange is excluded too. The recent amount of M1 in different countries and its annual growth can be seen in the first five columns of Table 3 at the end of this Appendix.

“Reserves” in the fractional reserve system are measured in the monetary aggregate M0. It consists of the total of central bank money, called base money, including notes and coin plus non-cash currency in the form of bankers’ operational reserves (Table 2).

Further types of deposits include savings deposits and time deposits (with an agreed notice period), or items on other accounts such as securities, bonds and equity shares. All of these represent financial capital, not money, because they are not regularly used as a means of payment. The only type of deposit that serves transactional purposes, i.e. with which one is able to make regular cashless payments, are sight deposits. All other types of deposits are not directly chequeable. They serve investment purposes primarily aimed at earning interest. Thus they represent capital deposits on capital accounts (Table 1).

That is why the monetary aggregate M2 (as in the USA and the Euro area, formerly also in Britain) is not a measure of the stock of circulating money, but an aggregate statistical indicator lumping together the stock of money in public circulation (M1) with different stocks of interest-bearing short-term capital such as savings and time deposits, and in the USA money market paper too. The same applies to M3 in the USA and the Euro area as well as to M4 in Britain. They include other types of deposits and securities in addition to M2 (Table 2).

Definitions of monetary aggregates have varied according to time and country. The reason for the apparent arbitrariness concerning the definition of money and capital lies in the predominance of the microperspective of bankers’ accountancy. In such a perspective, sight deposits, time deposits, savings deposits, etc, could seem to be just various types of short-term liabilities. Sight deposits on current accounts are not seen as fundamentally different from the rest, in that only they are chequeable for cashless payments.

Seen from a banking view, short-term capital appears to be “near-money”, with the boundaries between capital and sight deposits and cash becoming increasingly blurred. For example, in most countries withdrawals of limited amounts from the savings deposits in M2 can be made on demand. NOW-accounts (Negotiable Orders of Withdrawal) offered by U.S. savings banks can be withdrawn completely at any time. More and more banks in America and Europe now offer special arrangements for interest-bearing time deposits, although formally deposits redeemable at notice, to be in fact redeemable on demand. The money is immediately available to the customer. But it is not part of the circulating stock of money included in M1 because the “near-money” itself is not used as a regular means of payment. Before a cashless payment can be made with it, it must be transformed into a sight deposit on a current account, from where it can be transferred as a payment. Once it is on the current account, it is included under M1.

So any savings or time deposit, even if it is completely and instantly available to the customer, remains short-term capital and does not formally add to M1. In practice, however, much of the “near-money” does now represent instant liquidity almost as if it were money. This is probably why M1 in the U.S. has not been growing as usual but even shrinking during certain years since the beginning of the 1990s (Table 3), whereas M2 and M3 have continued to grow faster. Sight deposits are apparently created only when needed for carrying out payments, and are extinguished immediately thereafter by the receiver transforming them into interest-bearing short-term capital. That being so, a considerable proportion of the short-term capital now recorded under M2 - on average at least 30%, probably more, of the entire amount of nonchequeable deposits under that heading - could reasonably be estimated as more appropriate to M1.

In short, if there was an absolutely clear dividing line between money and capital (which, in the existing reserve system there is not), the statistics would show that much of the short-term capital in today’s M2, i.e. non-chequeable deposits with unlimited access, should be counted as money (M1) in addition to the existing stock of money in circulation.

A.2 Defining and Estimating the Money Stock After Seigniorage Reform

Let us call the total stock of existing official money M. Today, M can be understood as the stock of actually existing money which has been created either by the central bank or by private commercial banks. Even if a certain portion of this money is not in public circulation, it is nevertheless operationally necessary and needs to be created. After seigniorage reform, when the central bank will have the exclusive prerogative of creating the entire stock of official money, M will represent more clearly the quantity of plain money in existence. It will provide the base-line for deciding the amount of new money to be created annually, and therefore the amount of seigniorage revenue it will generate.

To estimate future M after seigniorage reform, we start from today’s M. It can be measured as the whole set of M0 and M1. This includes all existing cash, not excluding the cash in the banks’ tills. It also includes that part of the operational reserves in M0 which serve the banks’ own business; the other part which serves to carry out customer payments belongs to the sight deposits under M1. For simplicity we estimate that 50% of the bankers’ operational deposits serve the banks’ own business, and that the rest serves as a payment reserve for customers’ transfers of sight deposits to banks at other locations and abroad. Today, these operational reserves are of functional rather than numerical importance. They fulfil an important function in the system but the amounts are small (see Table 3, column D).

Starting, then, from today’s M as including M0 + M1 (i.e. cash in public circulation + all sight deposits + banks’ cash + say, 50% of bankers’ operational deposits), we need to add another two items to get an estimate of future M after seigniorage reform. One, as discussed above, is the conservatively estimated 30% of today’s M2 deposits which can be transferred on demand to current accounts for use as payments. These 30% will be formally held as what, for practical purposes, they already are, i.e. non-cash money (Table 3, column E).

The other item to be added arises as follows. After seigniorage reform there will still be a two-tier banking system, but no twofold circulation of non-cash money. Existing clearance practices will no doubt be continued for practical reasons, but these will no longer merely substitute for paying money. They will have become payments in non-cash money among current accounts, no matter whether these are bank accounts or customer accounts and where they are located. As a result, banks will have to handle much more money on their operational accounts with their central bank in carrying out their loan-broking and investment business. This will probably make it necessary for them to hold more money on those accounts, certainly much more than the negligible sums of today. The total could correspond to 50% of today’s cash in the banks’ tills. That amount is shown in column F of Table 3.

At first glance, bankers could see it as a hardship to have suddenly to make sure they have significantly more money in stock. But it would be offset by the central bank probably releasing the banks’ minimum reserves that have been obligatory under the present system. In 1998/99 obligatory minimum reserves amounted to £1.6 billion in the UK, euro 105 billion in the Eurozone, and $43.4 billion in the USA. With the fractional reserve system coming to an end, there would no longer be any justification to impose obligatory reserves for the safety of sight deposits. And safeguarding against bad loans is a different task for which there are different safety regulations already being in force. In countries where high minimum reserves are now held, the pay-back of obligatory reserves by the central bank to the banks might have to be stretched out. In countries with no minimum reserves today, e.g. Denmark or Sweden, or countries with very little reserve requirements, banks might be offered a transitional special-purpose low-interest loan facility instead. In this way it may be possible to sugar the pill for the banks in those countries. The banks in countries with normal or high minimum reserves will in principle face no problem.

Even if the estimates given here may become subject to revision, the approach above will remain valid. It suggests that the stock of future M and its annual growth will on average be greater than the stock and growth of today’s M1.

A.3 Estimating Today’s Special Banking Profits

Today’s way of creating new non-cash money is doubly disadvantageous. It imposes unnecessary “money taxes” in the form of special banking profits from interest paid on the stock of money (Chapter 4.1, 4.7), and it fails to collect seigniorage revenue as public revenue (Chapter 2.1). So the advantages of seigniorage reform will be the benefit of no longer having to pay interest for special banking profits and the benefit of seigniorage revenue. The total benefit of seigniorage reform to the real economy will include both.

The special banking profit for both central bank and commercial banks does not consist of the amount of money created, because the banks do not create that money for their own use (which would be unlawful). The central bank creates operational reserves for the banks, not for itself; the banks create sight deposits as money for the customers, not for the issuing banks themselves. Credit created appears in the banks’ balance sheet as an asset as well as a liability. Whenever a loan is paid back, the corresponding assets and deposits disappear on both sides of the balance sheet - as described in the reflux-principle by the representative of the 19th century banking school, John Fullarton. The credit created would certainly represent a decent seigniorage, but banks don’t have seigniorage. Instead, they have a special profit from interest paid on the credit they create. The special profit may be greater or smaller than seigniorage would have been. X per cent interest for Y years on an amount of money M can add up to a lower or higher sum than M itself.

The yearly profit of central banks reflects the interest they receive from banks at home and abroad in respect of those banks’ liabilities to the central bank. The profit is the surplus remaining after the expenses of a central bank have been subtracted. Such expenses are operating costs for salaries, services, transactions, etc., and interest payable by central banks to banks for temporarily re-borrowing (= absorbing) money from them. Table 4, line A, gives an international comparison of central banks’ annual surplus. Depending on national differences, all or some part of the profit is delivered to the national treasury, with other parts flowing into different types of reserve funds. The Bank of England continues to be taxed on gross profit as if it still were a private sector commercial bank.

In contrast to central banks’ surpluses, the commercial banks’ special profits from creating sight deposits are not disclosed. Banks may not themselves know what they are. Their books are not designed to show such things. So how can we estimate what those special, supernormal profits are?

The special profits of commercial banks can be estimated by taking into account the composition of deposits and specific interest rates. We can assume that the debit-interest rates - the rates of interest which banks don’t have to pay when they create new credit as loans to their customers, and which constitute their special profits - are roughly equal to the national base rate (e.g. repo rate, discount rate, etc). The structure of this approach is explained in more detail in table 4, footnote 3.

Depending on national particularities and the current stage of the interest rates cycle, the special banking profits of commercial banks seem to be about twice the size of central bank profits. If the use of cash decreases in the long term as foreseen, that will cause the banks’ special profits to become accordingly higher. That tendency is counterbalanced to a certain degree in countries with large reserves of foreign exchange. By lending these, central banks earn capital market interest rates which are much higher than domestic base rates. The situation in the UK is different from other countries because the Bank of England shares holding of international reserves and foreign currency liquidity with the UK government. Elsewhere, foreign exchange is exclusively held by central banks.

Table 4, line C, shows the total of “money taxes”, i.e. central banks’ and commercial banks’ special profits from the creation of operational and sight deposits. In 1998 these were $55.7bn in the USA, £23.9bn in the UK, DM45.3bn in Germany, and ¥4,087bn in Japan.

A.4 Estimating Seigniorage

With regard to future seigniorage, or today’s seigniorage foregone, it needs to be understood that it is not identical with the annual addition to the stock of money M. Government revenue would not be increased by the entire amount of new money created. Three factors have to be taken into account: first, the amount of existing seigniorage from coining; second, a possible surplus in foreign exchange inflows; third, that part of central banks’ annual net profit which comes from lending domestic currency (as contrasted with that part which comes from lending national stocks of foreign reserves).

The first item, seigniorage from coining, is already part of public revenue. Coining would continue to be part of the prerogative of creating official money, be it the government’s or the central bank’s. That part of seigniorage would continue to exist, but since it is not foregone today it would not be additional revenue after seigniorage reform. The amount is of minor importance. Coin represents about 1.5% of M1, and less in an increasingly cashless future.

The second factor, a possible surplus of foreign exchange inflows, certainly accounts for more. In countries with a surplus in the foreign exchange balance, potential seigniorage revenue would be reduced according to the annual increase of foreign exchange reserves. The reason is that in a national territory only national currency is admitted. An income from abroad has to be converted at home into national currency. In the case of the transnational European Monetary Union the principle is the same. The conversion is carried out by the central bank which takes in the foreign exchange as an asset in exchange for currency of the realm. This means creation of additional domestic currency to the extent to which external payments in and out result in a surplus in the foreign exchange balance. A positive net balance results in an addition to M1 and M. Those who receive the new domestic money are not the government, but the institutions and private persons who have taken in the foreign exchange.

In countries with a foreign exchange surplus, the amount of seigniorage that will be lost is not negligible, but not too significant either. For example, in the UK in the middle of the 1990s the balance of external financial flows was on average £2.7bn, varying between -9.4 in 1994 and +13.1 in 1997. On average this represents 7% of the average annual growth of M1, which was around £40bn (Colquhoun 1999: 365). In Germany at the same time the situation was similar. Growth of M1 on a three-year average was about DM60bn, whereas the increase of foreign exchange reserves was on average DM 4.2 billion, representing about 7% of M1 (Bundesbank Monatsberichte, tables II.2, III.1).

A foreign exchange deficit, conversely, does not reduce seigniorage. To be more precise, it does not do so for the moment. But it will do later when the deficit is closed by a temporary foreign exchange surplus. Then the central bank will create more of the new money by converting foreign exchange and less by creating seigniorage than it otherwise would. Under conditions of overall international growth with growing stocks of money everywhere the problem is not very relevant. If, however, a national deficit is chronic and growing, this has serious consequences for the national economy. Most foreign business partners will not accept payment in a currency in chronic deficit, usually under the strain of domestic inflation and international depreciation. They prefer to settle business in one of the hard currencies. That is why excessive “printing” of new money can never be a sustainable option. It leads inevitably almost without delay to domestic inflation and lethal implosion of a currency’s external value.

Thirdly, as a consequence of seigniorage reform, governments will lose part of the revenue they now get from their share of the central banks’ special banking profits from creating debt-money. The domestic part of these profits will no longer exist after seigniorage reform. So it must be deducted when we calculate the addition to public revenue that seigniorage reform will yield. This does not apply to the entire central bank‘s profit, just that part of it which stems from interest on loans it has made in its own national currency.

Since a fundamental restructuring of the world monetary system, including the question of repatriation of foreign excess reserves, cannot be expected to happen in a foreseeable future, central banks will continue to make profits from lending the accumulated national stocks of foreign exchange reserves, and those profits will continue to contribute to the public purse. For simplicity we estimate the domestic and the foreign part of central banks’ profit each to be roughly 50% of the total.

If we want to know now in numbers how much money seigniorage and public revenue will be, we start from the fact that today’s governments already have some revenue from the creation of money. The annual amount of it is the sum of new coin plus the total of central bank’s net profit delivered to the public purse (Table 4, line F).

The annual value of seigniorage will come from issuing the annual addition to M. As we have said, it is not to be confused with the special profits of today’s commercial banks that arise from interest income on additions to M1. So annual seigniorage revenue foregone today can be calculated by starting from the annual addition to M and then subtracting interest on lending the foreign exchange surplus as well as the value of new coin (Table 4, line G). The total of public revenue foregone, however, is less than seigniorage foregone because of the profits governments now receive from their central bank (Table 4, line H).

Future seigniorage will include almost all of future additions to M as calculated in Table 3, except for any surplus of foreign exchange which will have to be deducted from them (Table 4, line I). Then, to get the total of future public revenue from the creation of money, it will be necessary to add whatever profit there may be from lending foreign reserves (Table 4, line J).

All the figures given in Tables 3 and 4, except the actual amount of M1, should be regarded as approximate calculations. Their purpose is to obtain an idea of the amounts of money seigniorage reform is about. A more detailed and statistically more precise calculation would no doubt yield revised figures, but they could be expected to be of a similar order. Annual amounts of seigniorage revenue depend, for the most part, on the scale of the annual additions to M1, and these have differed widely from one year to another.

The message of these calculations is unequivocal. Seigniorage reform will bring a substantial pay-off. The total additional annual revenue governments can expect to get from seigniorage and remaining central bank profits would, given existing price structures, be of the order of £49bn in the UK, $114bn in the USA, more than euro 160bn in the Euro area, and ¥17.4 trillion in Japan. People in general will benefit more than that. They will be able to build up higher savings and capital of their own, because they will enjoy lower tax burdens or improved public services and the relief of no longer paying interest on the stock of domestically created official money. Seigniorage reform will be good for almost everybody.

1 4-6 % of which are coin, 94 - 96% banknotes.
2 Sight deposits = overnight deposits = all chequeable deposits
3 If source data are not available, banks’s cash is accounted at 15% of currency.
4 M2-specific deposits = M2 - M1. M2 in USA = M1 + Retail MMMFs + Savings + Small Time Deposits. In Europe without MMMFs (Money Market Fund shares/fund units/paper).
5 50% of today’s cash in the banks‘ till
6 Future DM = the potential of seigniorage if it existed today.

7 4-6 % of which are coin, 94-96% banknotes.
8 Sight deposits = overnight deposits = all chequeable deposits
9 If source data are not available, banks’s cash is accounted at 15% of currency.
10 M2-specific deposits = M2 - M1. M2 in USA = M1 + Retail MMMFs + Savings + Small Time Deposits. In Europe without MMMFs(Money Market Fund shares/fund units/paper).
11 50% of today’s cash in the banks‘ till
12 Future DM = the potential of seigniorage if it existed today.
13 1993-96 Notes and coin + non-interest-bearing + interest-bearing sight deposits (Mon.Finan.Stat., table 12.1). 1997-99 M1 of the EMS for the UK.
14 October 1999
15 March 1998 first available figure
16 October 1999

17 4-6 % of which are coin, 94-96% banknotes.
18 Sight deposits = overnight deposits = all chequeable deposits
19 If source data are not available, banks’s cash is accounted at 15% of currency.
20 M2-specific deposits = M2 - M1. M2 in USA = M1 + Retail MMMFs + Savings + Small Time Deposits. In Europe without MMMFs (Money Market Fund shares/fund units/paper).
21 50% of today’s cash in the banks‘ till
22 Future DM = the potential of seigniorage if it existed today.
23 August 1999

24 4-6 % of which are coin, 94-96% banknotes.
25 Sight deposits = overnight deposits = all chequeable deposits
26 If source data are not available, banks’s cash is accounted at 15% of currency.
27 M2-specific deposits = M2 - M1. M2 in USA = M1 + Retail MMMFs + Savings + Small Time Deposits. In Europe without MMMFs (Money Market Fund shares/fund units/paper).
28 50% of today’s cash in the banks‘ till
29 Future DM = the potential of seigniorage if it existed today.

Sources: The Federal Reserve Board of the United States, www.bog.frb.fed.us, Releases, Historical data, tables 1, 2, Assets and liabilities of commercial banks in the United States/Cash assets; European Central Bank, www.ecb.int, Monthly Bulletins, tables 1.5, 2.4; Office for National Statistics, London, Monetary and Financial Statistics Division, www.bankofengland.co.uk/mfsd, tables 1, 3.2+3, 12.1, Base rate, 9.1; Deutsche Bundesbank, www.bundesbank.de, Monatsberichte, Tabelle II.2, IV.1, V.2; Bank of Japan, www.boj.or.jp/en, Long-term time-series data, Money stock (old basis), Central bank discount rates.

1 Interest receivable by central bank minus interest payable to banks, and minus operational expenses of central bank, necessary capital reserves, or similar.

2 Profits of the issue department payable to HM Treasury plus profits of the banking department.

3 Amounts are estimated as follows:

a) The special margin rate which earns the special banking profit from creation of sight deposits is in principle equal to the national base rate of x% (e.g. repo rate, discount rate, or similar). So the special profit on all non-interest bearing sight deposits SD in M1 = SD . x%.

b) A certain proportion of SD is interest-bearing to the customer. That interest of y% payable by the banks has to be subtracted from the base rate which is receivable by the banks.

c) Another proportion of SD is created by current overdrafts. On these, customers pay an additional extra interest rate of z% which has to be added to the base rate.

d) Composition of deposits and interest rates differ according to country. For simplicity’s sake we assume that in all countries 3/4 of chequebable deposits would be non-interest bearing, and 1/4 interest-bearing (except in the UK, where the approx. proportion rather is 1/4 to 3/4), furthermore, 1/4 of SD is currently created by overdraft.

Interest rates could be accounted as follows: Base rate USA 5% - UK 5.5% - Euro area 3% - Japan 0.5%. Interest paid on sight deposits USA and UK 1.5%, Euro area 1%, Japan 0.3%. Additional overdraft rate USA and UK 5%, Euro area 4%, Japan 3%.

e) All in all, the special profits can be estimated at:

((2SD . x%) + (SD . x+z%) + (SD . x-y%))/4

In the UK: ((SD . x%) + (SD . x-y+z%) + (2SD . x-y%))/4

4 Calculated for 1998 and 1999 as in table 3.

5 Coin (~1.5% of DM1) plus central bank net profit delivered to the public purse. Numbers in 5-9 as of 1998 or 1999.

6 DM minus foreign exchange surplus (~7% of DM1, except USA which has a deficit), minus new coin as above.

7 DM minus foreign exchange surplus as above, minus new coin as above, minus central bank net profit delivered to the public purse.

8 Future DM minus foreign exchange surplus as above.

9 Future DM minus foreign exchange surplus as above, plus interest from lending national stocks of foreign reserves (~50% of central bank net profit very roughly speaking).

Sources: Federal Reserve Board of the United States, www.bog.frb.fed.us, Annual Report 1998. - European Central Bank, www.ecb.int, Annual Report 1998; Monthly bulletin, tables 5.1, 7.1. - Bank of England, www.bankofengland.co.uk/mfsd, Annual Report 1999. - Office for National Statistics, London, www.ons.gov.uk. - Deutsche Bundesbank, www.bundesbank.de, Geschäftsbericht 1998, Monatsberichte, table VIII.1. - Bank of Japan, www.boj.or.jp/en, Annual Report 1999, Bank of Japan Accounts; Central banks interest rates. - Japanese Tax Administration, www.nta.go.jp, Breakdown of General Account Revenue. - OECD in Figures 1999, www.oecd.org/publications/figures, pp.12, 38.

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The Social Crediter, 16 Forth Street, Edinburgh, EH1 3LH.

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