It typically costs central banks a lot less to produce money than it is worth. In the case of the United States, for example, it is said that a $100 dollar note costs less than 20 cents to produce. This implies that seigniorage revenues (the difference between the value of physical money produced and the cost to produce and distribute it) represent a meaningful source of funding for the activities of the central bank.
The South African Reserve Bank (SARB) does not publish data on the cost to produce individual notes or coins or its seigniorage revenues. But one can try to imply such annual costs from SARB’s new currency costs reported in their annual reports. Given the volatility of the data, it is worth looking at the figures over the long term. Over the last 20 years, total issuance costs for SARB (including its subsidiaries, the SA Mint and SA Bank Notes Company) have consumed over 25% of implied seigniorage revenues.
The recent decline in notes and coins in circulation means that since 2023 new currency issuance costs have exceeded the nominal value of new cash in circulation for the same year. This suggests that since 2023, SARB’s expenses have consumed all of the seigniorage revenues from its monopoly on money production. If currency in circulation continues to drop as a share of GDP and processing and distribution costs continue to rise, the extent to which physical seigniorage revenues can fund the activities of the Bank will decline.
In a future post, we will assess the extent to which financial repression (via the unremunerated reserve requirements SARB imposes on banks) contributes to SARB’s seigniorage revenues.
