let me put it as simple as possible to begin with “It is The profit that results from the difference in the cost of printing money and the face value of that money.”

During the era of metal-based money, the monetary base consisted of precious metals produced by the public and converted into coins by the State. The difference between the face value of the coins versus the cost of acquiring the metals and minting them generated a financial benefit for the State.

Seigniorage may be counted as revenue for a government when the money that is created is worth more than it costs to produce it. This revenue is often used by governments to finance a portion of their expenditures without having to collect taxes. If, for example, it costs the Indian government Re 0.5 to produce a Re 1 bill, the seigniorage is Re 0.90, or the difference between the two amounts.

Imagine you start the year with one ounce of gold. You trade it in for a gold certificate, which allows you to redeem the certificate for an ounce of gold. You keep the certificate for a year, then trade it in. At the end of the year you have exactly what you started with: one ounce of gold. No seigniorage occurred.

Now imagine that you have one ounce of gold, but the government doesn’t issue gold certificates. Instead the government will convert your gold into currency at the market rate. If gold were $500 per ounce, then at the start of the year you trade your ounce for $500. You keep the currency for a year, then at the end of the year you trade the currency back in for an amount of gold. However, this time the price of gold increased over the year, so gold is now $525 per ounce. You will receive slightly less than an ounce. This slight loss is due to seigniorage.

Even if you were then to use the currency to buy something, someone is holding the bill for the entire time and the government still has the gold. Pithily, seignorage is the carry on money in circulation.

But, now with the eMoney in use, concepts are changing. Electronic money (e-money) is one such new product which has appeared on Indian horizon recently. So says an article of Reserve Bank of India’s Website.

Can somebody explain why Notes are carried as liabilities on the Central Bank’s balance sheet while Coins are not (asset)?