Publications and Research

Seigniorage

Seigniorage is the difference between the interest the Bank of Canada earns on a portfolio of Government of Canada securities – which is roughly equal in value to the total value of all bank notes in circulation – and the cost of issuing, distributing, and replacing those notes.

Example

Here is a simplified example of how this works, using a $20 note, which is the most commonly used denomination. If the Bank of Canada invests the proceeds from issuing the $20 note in a government security generating 5 per cent interest, this note will indirectly yield $1 per year of interest revenue.

The overall production cost for the note is 9 cents. Given an average life of three years for a $20 note, the annual production cost of the note averages out to 3 cents.¹

If average distribution expenses of about 2 cents per year are added to this, the total average annual cost of putting this note into circulation and replacing it when it is worn is approximately 5 cents. Thus, the Bank of Canada clears an annual net revenue of about 95 cents for each $20 note in circulation.

Collection of seigniorage

Unlike the seigniorage for coins, which is generated at the time of their sale by the Royal Canadian Mint, seigniorage on bank notes is collected over a period of years, as the Bank's portfolio of government securities matures.

Use

In recent years, just over $50 billion in notes has been in circulation at any given time, although the amount can fluctuate, depending on demand. The Bank's net interest revenue has varied between $2.0 and $2.3 billion per year. A portion of this revenue – $376 million in 2008 – is used to finance the Bank's general operating expenses (of which spending for the currency function represented 38 per cent, or $142 million, in 2008). The remainder is paid to the Receiver General for Canada.

1. The lifespans of the other denominations range from seven years for $100 notes to two years or less for $10 and $5 notes.