About seigniorage in Your paper No.604 – Accounting in central banks
I just read in the above mentioned paper:
“We underscore that seigniorage is income actually earned on the assets matching the note circulation.
The definition of seigniorage as the difference between the face value of notes and their production costs is not used by central banks. This definition ignores the fact that the note is a liability of the central bank. “
My opinion is that actually the right definition should be used by the central banks. Notes can be a liability after being an asset for the banks. Notes and electronic money created by banks should be recorded as an inflow in the cash flow account before being spent or lent.
In the case of BofE, newly created money can be considered a liability as “seignorage due to the Treasury” only if – and only when – it is considered as a correspondent asset in the books of the Treasury under the title “seigniorage received from the banking cartel on principal creation”.
Else it is a fake liability because it would be in no way redeemable by the public or by the Treasury.
This view of an actually fake liability recorded in the books of central banks is also shared by Wilelm Buiter ( Seigniorage, 2007 www.nber.org/papers/w12919.pdf ) and the very few understanding how banking really work.
I wish You were among them.