Seigniorage is the difference between the value of money and the cost to produce it. It is a source of revenue for governments. For banknotes, the Philippines' central bank (BSP) earns seigniorage since it costs less than 1 peso to produce most banknotes, but they are face valued at higher amounts. However, for coins, producing some low denomination coins like the 0.25 cent coin costs more than its face value, resulting in negative seigniorage. While coins make up over half of the currency in circulation in the Philippines, some coins are removed from circulation by machines and stored in piggy banks instead of being recirculated. Governments cannot infinitely print money,

1. Topic V: Understanding Sources of
Financing of the Budget
A. Public Resource Mobilization
B. Understanding Public Debt
C. Seigniorage
Presented by: ROEL U. CAMBONGA

2. What is Seigniorage?
• (from Old French seigneuriage "right of the
lord (seigneur) to mint money")
• is the difference between the value of money
and the cost to produce it — in other words,
it's the economic cost of producing a
currency within a given economy or country.
BSP Define Seigniorage as the difference
between the face value of the currency
note/coin and the cost of printing/minting
In the Philippines ,the BSP is the sole
government institution mandated by
law to issue notes and coins for
circulation.
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3. Seigniorage may be counted as revenue for a government when
the money that is created is worth more than it costs to produce it.
revenue is often used by governments to finance portions of their
expenditures without having to collect taxes.
Example: The costs to produce ₱ 100.00 bill is ₱ 1.84
Seigniorage = value of money - cost to produce
S = ₱ 100.00 - ₱1.84
= ₱ 98.16
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4. Seigniorage Losses
In some situations, the production of currency can result in a loss
instead of a gain for the government creating the currency. This is
commonly experienced in the production of coins, as the metal has its
own inherent value. This value, often called the melt value, may be
higher than the denomination it represents from the beginning, or,
when combined with production costs, may result in a loss.
Example: The costs to mint ₱ 0.25 coin is ₱ 0.7419
Seigniorage = value of money - cost to produce
S = ₱ 0.25 – ₱ 0.7419
= ₱ (0.4919) negative seigniorage
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5. COST OF PRODUCTION IN PESOS
SOURCE: BANGKO SENTRAL NG PILIPINAS
4 4 4 4
5 5
0
1
2
3
4
5
6
20
peso
50
peso
100
peso
200
peso
500
peso
1,000
peso
Cost of Production (each note)
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6. PIECES OF NOTES BASED 2013 DATA
SOURCE: BANGKO SENTRAL NG PILIPINAS
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7. VALUE OF NOTES IN CIRCULATION BASED 2013 DATA
SOURCE: BANGKO SENTRAL NG PILIPINAS
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8. 4.4138
3.4663
1.1825
0.7419
0.4782 0.4798
0.9434
0.0000
0.5000
1.0000
1.5000
2.0000
2.5000
3.0000
3.5000
4.0000
4.5000
5.0000
10 peso 5 peso 1 peso 25 cent 10 cent 5 cent 1 cent
Cost of production per coin
10 peso
5 peso
1 peso
25 cent
10 cent
5 cent
1 cent
COST OF PRODUCTION IN PESOS
SOURCE: BANGKO SENTRAL NG PILIPINAS
As of 31 May 2017 , BSP estimated the volume/value of coins in circulation
are about 27.2 billion pieces of coins valued at P30.6 billion.
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9. BSP CIRCULAR NO. 537 Series of 2006 Pursuant to Section 52 of Republic Act
No. 7653 and Monetary Board Resolution No. 862 dated 6 July 2006, the
maximum amount of coins to be considered as legal tender is adjusted as follows:
1. One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-
Piso coins; and
2. 2. One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo,
10-sentimo, and 25- sentimo coins.
The small denomination coins, under one Peso, are currently being gradually
demonetized by the BSP. New coins and designs are being released in 2013,
and one Peso will become the smallest denomination on the new coins.
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10. Is there a shortage of low-denomination coins?
None. Of the 27.2 billion pieces of coins valued at P30.6 billion in circulation
as of 31 May 2017, about 56 percent are low-denomination coins (i.e., 1-, 5-, 10-
and 25-Sentimo). The number of coins in circulation is equivalent to 265 pieces
per Filipino. Artificial shortage of coins may occur because of the common
practice by people of keeping coins idle in piggy banks, drawers, wallets, jars,
etc., and not re-circulating them
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11. The BSP believes that many P1 coins are
removed from circulation by the
increased number of amusement
machines (like video games), videoke,
water and coffee vending machine &
piggy bank.
These coins tend to stay within the place
of business rather than being put into
general circulation which contribute to
inefficiency in the circulation.
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12. ADVANTAGES AND DISADVANTAGES OF SEIGNIORAGE
ADVANTAGE
1. Simplest way of the government to acquire money
2. Easiest way of the government to pay its debt
DISADVANTAGE
1. Inflation
2. High inflation leads to financial instability
Why can’t the government print more money to solve poverty and to
finance its budget?
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13. 13

14. 1. Zimbabwe
• In 2007, the Zimbabwe government was
unable to cut spending or raise revenues
enough to fianaced its budget deficit.
• And it could not borrow, as nobody lend it
money.
• So, it printed money to cover its budget
deficit.
• The result was rampant inflation.
Country with hyperinflation:
CAUSES OF HYPERINFLATION IN ZIMBABWE
• Land Reforms
• Low collection of taxes
• Printed more money
• Repayment of the IMF Loan
• Participation in Congo war (increase war spending)
• Increased scarcity of food and oil
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15. • Yugoslavia-In the early 1990s, there
was severe and prolonged
hyperinflation due to a combination
of economic mismanagement,
criminality and war.
• Massive amounts of money were
printed. The highest denomination
banknote was 500 billion dinars; it
was worthless two weeks after it was
printed.
2. Yugoslavia
In 1990s because of war, Yugoslavia break up with new states: Serbia, Croatia,
Bosnia, Slovenia, Kosovo
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17. End of Presentation
THANK YOU!