#seigniorage

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Changpeng Zhao, Justin Sun and Brad Garlinghouse are no doubt respected icons in the blockchain industry. Above many CEO or creators in the industry, the three musketeers are known for spending whoppingly to initiating partnerships and other developments for their projects as well as developing or acquiring new projects.

However, this has so far created diverse perceptions in the crypto…

The Federal Reserve tells us that more than $1.2 trillion worth of paper money is in circulation. In fact, there is $3774 in cash for every American. But we only know where roughly 15 percent of that money is—in banks or in regular, everyday circulation in the United States. The other 85 percent of the United States currency supply is simply missing. No one knows for sure where it is or what it's doing. "We call this the currency enigma," said Edgar Feige, an economics professor emeritus, in an interview with American Public Media’s Marketplace. "It’s hard to figure out where this currency is and why so much of it is out there."

There are some good guesses, but no certainties. And those possibilities tell us something about how our economy—and the world's—really works.

THE SHADOW ECONOMY

A chunk of the money is probably used in illegal transactions. This shadow economy is enabled by cash, which is generally the most anonymous method of payment. Economists like Feige put the size of the shadow economy—which includes drugs, prostitution and various other misdeeds—at hundreds of billions of dollars. At certain points, that has accounted for more than 20 percent of the country’s adjusted gross income.

But this doesn’t mean that all of the missing money goes into the shadow economy—after all, currency can be used again and again as it passes from person to person. That leads some economists to theorize that a relatively small percentage of the missing currency (less than 10 percent) is part of the black market.

THE OVERSEAS EQUATION

So where’s the rest of it? Much—if not most—of the money is probably overseas. U.S. bills are still seen around the world as some of the most stable and reliable currency available. So vast quantities of cash are hidden away for a rainy day (some $80 billion in Russia alone).

That’s not necessarily a bad thing. Think of it this way: If someone holds onto U.S. currency, they’re essentially giving the Federal Reserve free money. This concept is called seigniorage, and it’s a bit complicated to explain. Here’s the basic idea: The Fed creates money by buying government bonds from banks. As people demand more dollars—and hold onto them—the Fed buys more bonds to increase the supply. But those bonds earn interest, which means our central bank pockets billions of dollars in pure profit each year.

THE FED SCRAMBLES

All of this means that the Federal Reserve has a balancing act on its hands. It has to bring new money into circulation (since that earns it sweet, sweet moolah), but the bank also wants to to keep U.S. currency from being mainly used by gamblers and drug smugglers. In the 1960s, we stopped printing $500 and $1000 bills, as they were almost exclusively used illegally. These days, there's been criticism of the $100 bill for just the same reason. Believe it or not, there are more $100 bills in circulation than $20 bills!

The Fed also wants to make sure that the bills are as secure as possible—the demand makes the $100 an attractive target for counterfeiters. That’s why the $100 was redesigned just this year.

roistering, adj.

1. Of a person: engaged in or given to noisy revelling.

2. Associated with or characterized by noisy revelling; wild, uproarious; boisterous.

Etymology:  < roister n.1 + -ing suffix2. Compare later roister v.

roister, n.

1. a. A wild or riotous person; a boisterous or noisy reveller; (also) a bully.

Etymology:  Probably < Middle French, French rustre coarse, brutish man (12th cent. in Old French), use as noun of Old French ruistre (12th cent.), variant (with excrescent r ) of ruste , ruiste rude, violent < classical Latin rusticus rustic adj.

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seigniorage | seignorage, n.

†1. Lordship, dominion. Obs.

2. A duty levied on the coining of money for the purpose of covering the expenses of minting, and as a source of revenue to the crown, claimed by the sovereign by virtue of his prerogative.

3. A duty claimed by the over-lord upon the output of certain minerals, a royalty.

Etymology:  < Old French seignorage, seigneurage (modern French has seigneuriage ), < seigneur : see seigneur n., seignior n., and -age suffix. Compare Italian signoraggio.

Pronunciation: /ˈseɪnjərɪdʒ/ (s - ay - n - yuh - r - i - dj)

seignior, n.: a. In French Hist., a feudal lord; a noble taking his designation from the name of his estate. Also transf. in extended use.

Pronunciation: /ˈseɪnɪə(r)/ (s - ay - n - eah - (r))

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