Seigniorage and central banks’ financial results in times of unconventional monetary policy

In this paper, we estimate seigniorage and compare it with central banks’ financial results and the size of transfers to the government, adopting the view of seigniorage as the monetary authority’s net income from cash (currency) issuance. Based on the accounting data from the 2003-18 period, the paper analyzes seven monetary authorities: four of the larger economies (Bank of England, Bank of Japan, Eurosystem, Federal Reserve System), and three of the smaller ones (Narodowy Bank Polski, Swedish Riksbank, Swiss National Bank). With the exception of the Polish central bank, following the Global Financial Crisis and the euro area sovereign debt crisis, all of them have adopted unconventional monetary policy measures extensively. Since 2008 we have observed growing divergences between estimates of seigniorage (being typically well below 0.5 per cent of GDP) and financial results (reaching in some cases and years well above 0.5 per cent of GDP), and implied transfers to governments, the latter subject also to different rules of central banks’ profit distribution. We attribute these differences primarily to unconventional activities of central banks in the case of larger economies, and to strong volatility of exchange rates in the case of smaller ones (the Riksbank being an intermediate case). We close our analysis by showing that cash and the resulting seigniorage can play the role of a buffer during the monetary policy normalization process.