Seigniorage charges are profits or revenue from the minting of coins or currency. For small denominations, this is normally the difference between the value of the coin alloy, or bullion, and the actual coin face value. This term generally refers to the cost of producing or minting coins and is applied to a nation's budget. When the cost of producing the coin is less than the face value, the government makes a profit. When the cost of production is more than the value of the coin, it is shown as a loss.
Historically, the authority to print coinage was authorized by the nation's king. The balance was then paid to the royal account if the balance was positive. Negative balances were often addressed by changing the alloy of the coin to a base metal to maintain a consistent coin value and not create an additional expense for the king. This also debased the currency value. In effect, many economists contended seigniorage was an inflation tax paid by the customer of the mint to the sovereign of the nation for issuance of the coins.
This practice was stopped in the mid-1600s in England, as monetary systems were being altered to maintain a better record of accounts. Coins today carry very little intrinsic value and are generally tokens that are traded for nominal goods and services. The contemporary definition is the difference between the cost of production and the actual value of the money.
Contemporary seigniorage applications and fees can also include many minerals, both major and minor, and not just precious metals. Examples of current materials subject to seignorage charges are marble, mosaic chips, construction grade sand and various forms of limestone and gravel. Granite and its variations are also included on a tri-level grade system, with a value assigned to scrap granite, as well. In India, for example, contractors and developers are required to pay seigniorage fees on various construction materials as set forth in The Mines Act of 1952 and The Mineral Act (Regulation and Development) of 1957.
Seigniorage today usually refers to the issuance of bank notes, particularly United States $100 bank notes. It is inherently cheaper to print fiat money and the amount of United States $100 bills in circulation was 76% of the total US currency circulation worldwide. British notes, along with Swiss $100 notes, are also circulated worldwide, but many countries have a considerable fear of the counterfeiting of paper money, as these high denomination values create an incentive and temptation of creating fake currency that can be passed more easily in areas of limited prosecutorial jurisdiction for counterfeiters.