Question
Which of the following are part of “Seigniorage”?
Select the correct answer using the code given below:
- Interest income on reserves kept with RBI for money creation
- Interest accruing from bank balances kept the central bank as interest-free balances in order to meet the reserve requirements
- Inflation tax
Select the correct answer using the code given below:
Answer: Option D
Answer: (d)
Seigniorage refers to the income from money creation. It is a way for governments to generate revenue without levying conventional taxes. Seigniorage is the profit that accrues to the central banks (which then may be transferred to the central government) in the following ways:
While issuing currency, the reserves/backup that the RBI keeps with itself, these reserves give RBI interest Income on the total amount of currency in circulation (minus cost of printing currency)
Interest accruing from bank balances with central banks arises from funds banks have to hold with the central banks to meet their reserve requirements, either as interest-free balances (CRR) or at below-market interest rates. the inflation tax concept which is measured as the product of the inflation rate and
the monetary base. (Because of inflation, the currency note that the public is holding losses value which reduces the liability of RBI in real terms)
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Answer: (d)
Seigniorage refers to the income from money creation. It is a way for governments to generate revenue without levying conventional taxes. Seigniorage is the profit that accrues to the central banks (which then may be transferred to the central government) in the following ways:
While issuing currency, the reserves/backup that the RBI keeps with itself, these reserves give RBI interest Income on the total amount of currency in circulation (minus cost of printing currency)
Interest accruing from bank balances with central banks arises from funds banks have to hold with the central banks to meet their reserve requirements, either as interest-free balances (CRR) or at below-market interest rates. the inflation tax concept which is measured as the product of the inflation rate and
the monetary base. (Because of inflation, the currency note that the public is holding losses value which reduces the liability of RBI in real terms)
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