Making Money from Making Money: Seigniorage in the Modern Economy

Who really profits when money is created? This research report from the New Economics Foundation (NEF) and Copenhagen Business School argues that commercial banks, not governments, capture most of the profit from creating money.

In the UK, only about 3% of the money supply is cash. The other 97% is bank deposits created when banks make loans. The authors build a new model of “commercial bank seigniorage” and estimate what this privilege is worth.

Key findings

• UK: Banks earned about £23 billion a year from money creation (1998–2016), or 1.23% of GDP. That is about £443 billion cumulatively.
• The authors compare this with state seigniorage from banknotes, which is only about £1.2 billion a year.
• Seigniorage is equal to about 73% of UK banking sector profits (before provisions and tax) and 84% in Denmark.
• Denmark: DKK 11.7 billion a year (0.7% of GDP)
• Switzerland: CHF 2.8 billion a year (0.6% of GDP)
• Iceland: ISK 14.1 billion a year (0.9% of GDP)
• If 30% of the UK money supply had been central bank digital currency (CBDC), the public purse would have gained about £182 billion between 1998 and 2016.
• Most bank lending goes to property and financial assets. Less than 10% of new money goes to non-financial businesses.

What’s inside

• What money is and how it is created (cash, central bank reserves, bank deposits)
• State seigniorage from notes, coins and reserves, including a section on QE
• The model of commercial bank seigniorage, with country-by-country results
• Analysis of credit trends and mortgage lending
• The case for central bank digital currency, with a UK and Denmark counterfactual
• Appendices on bank solvency and liquidity, data sources and calculations, plus about 74 endnotes

Who it’s for

Economics, finance and public policy students, bankers, journalists, policy researchers, and anyone interested in monetary reform, sovereign money, CBDC or the debate over the “end of cash”.

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