Seigniorage

A coin was, in concept, simply a piece of precious metal (usually gold or
silver) the weight and fineness of which was guaranteed by the ruler whose
name, portrait or symbol was stamped on the coin. The ruler might have been
be a king or queen as in England or Scotland, a duke or count of one of the
many small independent states which made up Germany or Italy, an
ecclesiastical authority, bishop or abbot, or an Italian city state. In France both
the king himself and his feudal underlings had coinage rights.



In principle, and for a long period of history, a mint operated on the basis of
a laundry. Private citizens would bring bullion to the mint. It would then be
assayed, refined and struck into coins, and the citizen would receive in return
coins equal to the value of the metal brought in less a deduction known as
seigniorage. Mint practices obviously varied from country to country and at
different periods of history: even when this principle operated, the citizen
would not typically expect to receive the coins struck with his own metal. He
would usually be paid with already minted coins as soon as the weight and
fineness of his gold or silver had been agreed. Sometimes, too, the mint would
buy bullion in the market in exchange for its coins, on its own initiative. In all
cases, the principle is the same—the mint exchanges coins for gold or silver,
and retains a small proportion for its trouble.
Coins were more convenient than bullion and therefore you would expect
them to have an economical value of a small premium over the bullion content.
Even today, sovereigns and specially minted coins such as Kruger Rands
command a market premium over their gold content. The mint adds value, and
the public accepted that it would exact a reasonable charge for its services, and
that the weight of coins handed over by the mint in exchange for a pound
weight of silver or gold would be something less than one pound.1
Seigniorage, the charge made by the mint for turning bullion into coins, can
be defined in two ways (and spelt in rather more). The mint’s total charge
included the actual cost of making coins plus the profit made by the
government. Some writers define seigniorage as the profit element only.
However, using the term to mean the total gross margin has the practical
advantage that it can be derived from facts which will typically be known
accurately to the historian, who may have more limited evidence on the
division between cost and profit. This preferred usage is supported by the
Oxford English Dictionary:
A duty levied on the coining of money for the purpose of covering the
expenses of minting, and a source of revenue to the crown, claimed by
the sovereign by virtue of his prerogative.
Moneying, as an activity, needs to be under strict royal or equivalent control.
There is therefore a wealth of documentary evidence to show how at different

times and places the seigniorage was calculated. These sources often, but not
always, show how it was divided between costs, and the profit respectively of
the moneyer, the ruler and (sometimes) the intermediate authorities.2
At some time in early modern history, coins began to be minted as a public
service without seigniorage. In England, for example, this reform dates from
1666. The costs of the mint were thereafter borne out of taxation. For instance,
in 1793, (immediately before the French Wars upset British monetary
arrangements) the citizen could formally require the Mint to coin gold bullion
for him at the rate of 44½ guineas per troy pound of standard (22 carat fine)
gold—that is at a value of £3 17s.10½d. would get back the exact weight of gold:
the mint made no charge for its services. He would, however, have to wait for
his guineas until they were coined. As a practical alternative, he could, and
generally would, go to the Bank of England’s Bullion Office which would buy
his gold bullion for coins, paying £3 17s.6d. on the spot—a discount of less
than 0.5 per cent.