1

Seigniorage

Seigniorage, (seignorage)

Entrepreneur,

arbitrage,

tranche

Prepared by Conall Boyle March

2007

2

(Bank of England)

^ Seigniorage?

3

Bank of England (BoE)Annual Report and Accounts p91Issue DepartmentAccount for the period ended 28 February 2007

2007 2006Note £m £m

Income and profitsSecurities of, or guaranteed by, the British Government 628 619Other securities and assets including those acquired underreverse repurchase agreements 1,082 1,124

1,710 1,743Expenses 2Cost of production of Bank notes 36 28Cost of issue, custody and payment of Bank notes 17 14Other expenses 4 3

57 45Payable to HM Treasury 1,653 1,698

4

( payment to GB: £1,653) £38,449 - £36,920 difference = £

1,569

5

Bank of England (BoE)Annual Report and Accounts p91

Statement of balances: 28 February 2007 2007 2006 Note £m £mAssets Securities of, or guaranteed by, the British Government 3 13,370 13,370 Other securities and assets including those acquired under reverse repurchase agreements 4 25,079 23,550Total assets 38,449 36,920Liabilities Notes issued: In circulation 5 38,449 36,914 In Banking Department – 6Total liabilities 38,449 36,920 ( payment to GB: £1,653) difference = £ 1,569

6

7

notes: 3 Securities of, or guaranteed by, the British Government

2007 2006 £m £m

Ways and Means advance to the National Loans Fund 13,370 13,370

13,370 13,370The Ways and Means advance earns interest at the Bank’s repo rate.

4 Other securities and assets including those acquired underreverse repurchase agreements

2007 2006 £m £m

Deposit with Banking Department 49 53Short-term reverse repurchase agreements 10,030 17,497Longer-term reverse repurchase agreements 15,000 6,000

25,079 23,5505 Notes in circulation

2007 2006£m £m

£5 1,100 1,052£10 5,886 5,591£20 23,740 22,690£50 6,705 6,510

Other notes(a) 1,018 1,07138,449 36,914

(a) Includes higher value notes used as cover for the note issues of banks in Scotland and Northern Ireland in excess of their fiduciary issues

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9

Profit to GB (seigniorage)

0

500

1000

1500

2000

2500

3000

Years 1980-2007

£mn

Information from Bank of England Annual Reports. Only 2 years info per Report; earlier Reports not on-line, were supplied to me directly.

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Note Issue

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Years 1980-2007

£m

n

From BoE Annual Report, but can also be found as M0 elsewhere. Some discrepancies

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Change in Note Issue

-£1,000

£-

£1,000

£2,000

£3,000

£4,000

£5,000

Years 1981-2007

MN

Calculated by CB from the published figures

12

Two versions of Change in Note Issue

-£1,000

£-

£1,000

£2,000

£3,000

£4,000

£5,000

Years 1980 to 2006

From Annual Reports

From Statistics (Yr End)

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Compare Profit & Note-Issue

-£1,000

£-

£1,000

£2,000

£3,000

£4,000

£5,000

Years 1981-2007

£m

n

Change in Note Issue Profit to GB

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Seigniorage?

0

500

1000

1500

2000

2500

3000

Years

£ m

n

Smoothed Change inNote Issue

Profit on Note Issue

Seigniorage?

0

500

1000

1500

2000

2500

3000

Years

£ m

n

Smoothed Change inNote Issue

Profit on Note Issue

15

The only clue to the nominal rate of interest ‘earned’ on Note-issue?

16

Bank Rate (avg)

02468

1012141618

Years 1980-2007

%

Source: BoE statistics publications.

Averages shown for previous year to roughly coincide with Report publication date.

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Report dateNotes in Circ bank rate Calculate0 IUAABEDR

1980 £9,775 13.75 £1,3441981 £10,325 16.30 £1,6831982 £10,775 13.18 £1,4201983 £11,025 11.93 £1,3151984 £11,470 9.86 £1,1311985 £12,040 9.68 £1,1651986 £12,320 12.08 £1,4881987 £12,850 10.74 £1,3801988 £13,310 9.60 £1,2781989 £14,120 9.96 £1,4061990 £15,030 13.67 £2,0551991 £15,380 14.64 £2,2521992 £16,130 11.56 £1,8651993 £16,970 9.42 £1,5991994 £17,170 5.88 £1,0101995 £18,060 5.34 £9641996 £19,660 6.57 £1,2921997 £22,020 5.88 £1,2951998 £23,548 6.55 £1,5421999 £24,800 7.23 £1,7932000 £25,140 5.34 £1,3422001 £27,200 5.97 £1,6242002 £29,390 5.12 £1,5052003 £33,866 4.00 £1,3552004 £36,016 3.69 £1,3292005 £35,420 4.39 £1,5552006 £36,920 4.65 £1,7172007 £38,449 4.64 £1,784

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Profit on Note Issue, TotNote Issue x Bank %

0

500

1000

1500

2000

2500

3000

Years

£ m

n Profit on Note Issue

Tot Note Issue X Bank%

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Seigniorage (Bank of England Style)

Seigniorage for the year =

Total Note IssueX

Average Bank Rate

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BoE uses the S. word!

Seigniorage by Willem H. Buiter Professor of European Political Economy European Institute,

London School of Economics and Political Science from LSE Economics website

Discussion Paper 2007-8 March 1, 2007.

Buiter was one of the MPC external appointments.

 

21

Use cash – back Britain

Keep one of these in your wallet/handbag; earn 25p for us.

Use a cheque or credit card – Nil

USE CASH ONLY!IT’S PATRIOTIC!(and saves us paying tax)

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• Make ‘em pay! – For their raw materials

M3/M4 - £1,550,000 mn

@ 5.50%

£85,000 mn