The more I read up on this stuff the happier I am to be firmly entrenched in Crypto as the world economy is going to take a massive hit as this is unsustainable.
I was reading an article this week that mentioned the term "seigniorage" and had to look this up as this is not something I had heard before.
How does seigniorage work?
Seigniorage forms part of the revenue for a government when the worth of the money is more than the cost of producing it. The revenue can be used by the governments to finance a portion of their expenditure without the need to collect tax revenues
What is seigniorage and examples?
Seigniorage refers to the profit made by a government when it issues currency. It is simply the difference in the value of the currency versus the cost of producing it. For example, if a central government bank produces a bill worth $10 and it only costs $5 to make it, there is a $5 seigniorage.
In other words Seiniorage is money printing which can be seen as providing the government with increased purchasing power at the expense of the public purchasing power ultimately creating what is known as an inflation type tax on the general public.
The article I was reading was regarding the Central banks in the Eurozone who are expected to have a shortfall of around $70 billion next year. In the same breath they mentioned that central banks can never go bankrupt as they can just print more money covering what is outstanding. Kind of scary when you think about this as there is no end in sight for the money printers as they can always be relied upon for bailing them out when required.
Having this as common practice is what has got us to this point of having so much national debt which no one seems to even care about. Possibly the $70 billion will coincide with the introduction of CBDC's next year flooding across Europe.
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One would have to ask the question as to what type of impact this printing we have experienced over the last few years will have long term? 35% of all American dollars in circulation printed in just 2 years is seriously worrying for the world economy.
The problem is how much money can be printed before it impacts the economy in a negative way via inflation. There are roughly 150 billion bank notes printed globally each year and that is an average year not like what we have experienced over the last 3 years.
The scary part is looking at the bigger picture as how much will be made from CBDC's as this is virtual printing with no real cost attached as there is no paper or ink involved. A $1 CBDC should in theory cost close to 0 to create making virtually 100% seigniorage close to doubling the overall value if the $10 note cost $5 to make as an example. You can start to see why Governments do want a digital currency as suddenly they have far more to play with.