Curated by: Luigi Canali De Rossi

Monday, December 19, 2005

Why Banks Sell Money They Don't Own? Is Seignorage The Secret Money Tree?

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Definition: Seigniorage, also spelled seignorage, is the net revenue derived from the issuing of currency. It arises from the difference between the face value of a coin or bank note and the cost of producing and distributing it. Seigniorage is an important source of revenue for some national governments.

Photo credit: Hannah Gleghorn

"Public debt" was literally invented by politicians and bankers so as to enrich private brokers of the Central Banks. Here in Italy, as well as anywhere else traditional banking systems are at work today.

In the past, banks emitting money would guarantee it with their valuable assets and reserves, converting paper money in gold, and paying on their own an issuing and printing cost.

While today's money is not guaranteed anymore by gold, they are not convertible, and its issuing and printing fees are practically non-existent, what is gained by those who issue and sell the actual currency, in other words seignorage, has a nominal value of 100%.

When the State asks for money to the Central Bank, it pays the cost of its nominal value with titles and assets with titles of the public debt (and not just the typographical cost), basically committing itself to the need of levying ever-increasing taxes from citizens and companies.

All this occurs through the Central European Bank, a judicial monster created by the Maastricht Treaty, exempt from any democratic control as for a live sovereign state, above everyone else.

Photo credit: Hannah Gleghorn

Italy keeps getting poorer as public debt keeps increasing, leading to a very high fiscal pressure.

The Central European Bank balance shows that the European System of Cental Banks (ECB) there are about 50 billion euros which belong to the Italian State, an amount the Italian government should be asking back.

We are faced with a "mister" who uses the State, the fiscal system and the public administration to create a constitutional disinformation system with the goal of hiding its own business deals and aims while creating an illusion of legality.

This is a system of power which has been erected and maintained on the premise that's it's always been ignored by people, especially by workers, tax payers and money savers.

Who owns money when it is issued?

The Central Bank issues money for, let's say, a thousand billion Euros.

To whom does that value belong?

To whom does the currency and the value of the money belong when issued from the Central Bank?

Does that money belong to the Central Bank itself, which in turn has then the right to ask your State to pay for it?

Or does that money belong to the State, to the people, who then should not be forced to pay back neither the money nor the interests to the Central Bank when in need of money?

This is a fundamental question, because depending on the answer given to it, the State indebtment can be understood.

The fact that using the power of money through the Central Bank is an instrument of power that bankers have over the state, finds confirmation in the attitude that public institutions have in trying to render ambiguous and unclear everywhere, even in the Parliament, the fact that the Bank of Italy, in our case, sell at a very high price money-currency which does not cost a dime and to which the central bank is not adding the value, that is, money's buying power.

Buying power, as we have seen, is conferred to money via the marketplace, the people, the actual demand for money.

The Central Bank has NOT generated the "value" of the money we are using, nonetheless, it behaves as if it owned that very money by selling to the State (and to the commercial banks) in exchange for State titles and other assets.

This is really paradoxical.

It is like if a typographer working for a soccer team, which was commissioned the printing of 30,000 tickets for an upcoming match (with tickets bearing a printed value of $20 on each), would ask as a compensation $ 600,000 on the basis that the tickets it has printed have a market value of $20 each.

It is true that each ticket is worth $20. But the fact that these tickets have a value does not depend on the typographer but rather from the sport organization that has created the soccer team, that has made available a playing field and organized the match itself while supporting the relative costs and creating the very demand for those tickets, and without all of which, these tickets would be worth absolutely nothing.

The sport organization administrators know this very well, but the typographer partly blackmails them and partly flatters them because it promises them that if they will pay him the unjust compensation requested he, the typographer, will give them a valuable compensation and monetary funds to get re-elected at the next elections for the administration board. Otherwise it will finance other candidates and a press campaign against those honest administration board members.

The banking powers behave just like that typographer, and those who are in the government behave like those blackmailed and flattered administration board members of the soccer team, as they approve to the Central Bank the ownership of the currency it issues, printed or written for. Not only. The banking powers create unjust and illogical debt for the people of their countries, who is indeed the element that with his work and his buying demand through the marketplace, gives actual value to the money.

It is for this reason, besides the constitutional principle of people sovereignity, that at the moment in which currency is issued, its value should be and be managed as people's property, and for them, by the State itself.

The State should never indebt itself and the people of its country toward a Central Bank, public or private, to obtain the money it needs.

To the contrary, this is what happens on an ongoing basis.

But there is something worse: the Central Bank, that is its shareholders, not only appropriate to themselves the value of the money that the Central Bank issues, with much damage to the State and its people, but it records this value not as an active entry but as a passive cost, fully emulating a debt and avoiding therefore the need to pay taxes on what is nothing else but a pure capital increase and which, therefore, should be fully taxed.

The above logical reasoning, has been already submitted to the Italian Parliament, through official and public parliamentary interrogations in 1994 and in 1995.

Both answers received avoided dealing directly with the issue by stating that the Central Bank (at the time the Banca d'Italia) were not owners of the currency value printed on the money, because the money issues would always constitute a debt; in this light, the Banca d'Italia would justly enlist it in its accounting as a passive cost.

As the members of the governments ruling in those years could not ignore, these answers are completely opposite to the actual truth.

First of all, the official answer provided is contradicted by the behavior of those very same governments - or for that matter of any government.

As a matter of fact, if the governments were coherent with the affirmation that money and its value do not belong to the issuing bank, why does the state continue to give something (public debt bonds) in exchange for that money?

And, if the money did really constitute a passive cost, a debt, why should the state buy it by paying it with titles of the public debt which constitute a credit for those who receive them?
Have you ever seen someone paying someone else to purchase a debt?

But the answers of the government are also false legally, because money is not at all a debt for the bank that issues it.

If it was a debt, that debt should be payable to carrier at the very bank, through direct conversion into gold. This was how it used to be, as check and currency holders could convert back their currency into gold at the issuing bank, until about 1929.

Also after 1929, many money bills used to carry a printed phrase which said: "Pagabile a vista al portatore" (payable immediately upon presentation).

But payable in which form, since these were not convertible in gold anymore?

In truth, those currency bills were not cashable anymore and that phrase was a lie to mislead people into thinking that the bank bills were convertible into something having its own value or that the bank had actually indebted itself to issue them, which is completely false (while it was true in a remote past).

On the other hand it is natural that no government could allow itself to provide truthful answers to such questions, as it would have to admit that its true function is the one of committing frauds against its own citizens and voters to enrich a financial elite that controls the true power.

But the above constitutes only the tip of the iceberg, as the largest part of existing money in circulation, or about 85% of it, is not true money, issued from the Central Banks, but money created through credit. That means credit-based money that commercial banks create out of air.

Such banks, by the continuous creation of this credit-based money, become owners of the total buying power of the world people.

This article was originally written in Italian as an introduction to a new published book entitled: "Euroschiavi, e i segreti del signoraggio" of Marco Della Luna and Antonio Miclavez and first published online on November 11th 2005 as:

Translation by .

Robin Good - Marco Della Luna e Antonio Miclavez -
Reference: Il Consapevole [ Read more ]
Readers' Comments    
2007-10-14 06:45:50

Ben Carver

Look at this blog from one from one of the best economist in the world so you will discover not to speak nonsense:

2005-12-21 10:06:23

Sepp Hasslberger

Thank you for this article, Robin.

Yes, the inconsistency between bank ownership of issued money and public acceptance of it - which is the act that lends money its value - is glaring and little understood.

Seignorage is normally defined as the difference between the production cost of physical currency - coins and banknotes - and the value which the currency commands on the market.

As the writers correctly point out, that difference goes to the central bank. In Europe, the profit is divided between national central banks - they get the seignorage on coins - and the European central bank, which benefits from the seignorage on the Euro banknotes.

While seignorage is a serious concern, it touches only a minimal part of money in circulation, because only 3 to 5 % of all money is actual physical currency. The rest - typically more than 95 % of the total - is issued in the form of electrons by the commercial banking system. That is where the real money is made.

Once created by granting a "loan", that money is subject to payment of interest, until its destruction by repayment of the loan. Popular misconception has it that the banks collect money from people saving and then subsequently loan it out to others. Nothing could be further from the truth. The majority of loans given by commercial banks are NOT covered by comparable amounts deposited in the bank's vaults by saving.

The technical term for this is "fractional reserve banking".

Anyway, thanks again for a needed article to wake us up to the facts of monetary economy.

posted by Robin Good on Monday, December 19 2005, updated on Tuesday, May 5 2015

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