Seigniorage is like the goose that laid golden eggs.

A few days back, interim Finance Minister Piyush Goyal suggested that fiscal deficit should be financed by printing currency notes. This was a few days after presenting this year's Budget which "focused on doling out handouts", "backed by questionable estimates of additional revenue generation", wrote R Singhal. "The fiscal deficit for the year has been revised upwards to 3.4 percent of the gross domestic product (GDP)." "As finance ministers we are always in need of money," said Goyal. "I have heard that the US does deficit financing only by printing currency." He was speaking at the Security Printing and Minting Corporation of India (SPMCIL) which made a profit of Rs 6.3 billion last year, of which Rs 2 billion was handed over to the government as dividend. SPMCIL prints banknotes, stamp papers, postage stamps, passports and bonds and also engages in refining of gold and silver among other activities. It is silly to compare India with the US, the only country which can print the dollar which is used as national currency by sovereign nations, like Ecuador and El Salvador. It is also the reserve currency of the world because "it makes up nearly 62 percent of all known central bank foreign exchange reserves". "Around $580 billion in US bills are used outside the country. That's 65 percent of all dollars." US Treasuries and institutional bonds constitute the major portion of our foreign exchange reserves. By August last year, the Reserve Bank (RBI) had sold around $25 billion for rupees to stop it sliding below 69 to the dollar. By September, the RBI was selling dollars to protect the rupee from sliding below 72 to the dollar. The rupee is trading at 71 to the dollar today. Printing money to pay for deficit just causes inflation to rise and a depreciation of the currency. "By 'printing currency', Goyal is referring to what traditionally was called money finance or monetizing the fiscal deficit," wrote Prof V Dahejia. The government sells bonds to domestic and international investors to finance debt, whereas "money finance is possible because of what is known as 'seigniorage' -- the profit the central bank makes as the monopoly provider of fiat currency". Therefore, the more notes the RBI prints the more it earns from seigniorage, which it can pay as dividend to the government. Sadly, not so simple. Despite supplying dollars to the world "average annual rates of seigniorage in the US were merely 0.4% as a share of GDP and a little less than 2% share of government spending". Emerging economies have a much larger share. "For example, for Argentina, average annual rates of seigniorage in the 1971-90 period were about 10% as a share of GDP and a huge 62% as a share of government spending." Argentina's economy is in deep crisis, with inflation at 50% and a 50% depreciation of the peso. Deputy Governor of RBI V Acharya warned of situation like Argentina which infuriated the government. Goyal should have read Acharya's speech. Or about the goose that laid golden eggs. Easier to understand.