Banknotes and euro coins in circulation are part of the monetary base. Banknotes are recorded on the liability side of the balance sheet of euro area central banks, in proportion to their subscribed capital key shares in the ECB. The interest earned on the assets held against banknotes in circulation is known as seigniorage – this is the income derived by central banks from their banknote issuance privilege.
The ECB and the 19 national central banks (NCBs) of the Eurosystem issue euro banknotes. In accordance with the allocation mechanism defined in the Statute of the European System of Central Banks and the ECB, 8% of the total value of euro banknotes in circulation is allocated to the ECB, with the remaining 92% falling to the different NCBs: each NCB records as a liability the share in the total value of Eurosystem banknotes corresponding to its holding in the ECB’s paid-up capital after deducting banknotes allocated to the ECB. For the Banque de France, this share stood at 20.14% in 2015.
This capital key takes into account the population and the GDP of the Member States, and is adjusted every five years or whenever a new country joins the monetary union
The total euro banknotes allocated to the Banque de France makes it possible to calculate the seignorage income derived from the exclusive right to issue banknotes. This monetary income is equal to its annual income derived from its assets held against banknotes in circulation.
Euro banknotes and coins in circulation are part of the monetary base, also known as M0 in reference to the monetary aggregates that allow the different types of money to be measured according to their degrees of liquidity.
In addition to banknotes, the monetary base also includes the deposits of credit institutions recorded on the liabilities side of the central bank’s balance sheet: These deposits correspond to the reserve requirements that have to be fulfilled, as well as the excess reserves deposited by banks in their account at the central bank. These deposits are remunerated at the deposit facility rate, which is currently negative.
Updated on: 06/07/2018 15:06