The coinage laws of a state also determine the charges for coinage and the freedom with which the state will coin for an individual any bullion he may have and wish coined. Since coins are manufactured articles, the actual expense of coinage appears to be a legitimate charge to the person bringing bullion for coining. Such charge is called "brassage." The state, however, sometimes uses its monopolistic position to charge more than this actual cost. The profit to the government in such a case (including the brassage) is called "seigniorage" and may be so fixed as to bring large returns to the government. The charge of high seigniorage amounts to a depreciation of the coinage to that degree, if the government coins and puts into circulation this seigniorage. If the state charges no brassage, it is said to have "gratuitous" coinage.
Charging seigniorage has been resorted to for several purposes. Kings have been known thus to depreciate the currency for fiscal purposes. To stop persons from melting coins, a seigniorage charge is effective, since an ounce of coined metal is then worth more in exchange than an ounce uncoined. Likewise, to prevent its exportation, a seigniorage charge suffices, since the coins are acceptable in the foreign country at only the market value of their metal content. To keep down the size of a coin made from low-value metal, a high seigniorage is effective, thus rendering copper cents and other such coins convenient in size and economical in manufacture.
To the degree that the nominal value of a coin represents seigniorage, it becomes a fiduciary form of money. The holder then depends upon the government, and no longer upon the market, to maintain the value of his coin. In this respect there is no essential difference between a silver dollar, which represented in 1920 about 25 per cent seigniorage, and the greenback, which represents 100 per cent seigniorage. This phase of the subject is treated in Chapter III.
The state may proclaim itself ready to coin any amounts of bullion brought to it by individuals. This freedom conferred by the state is "free" coinage. Under free coinage the state may or may not charge brassage; the United States has, at different times in the past, tried each plan. Neglecting interest loss, free coinage with no brassage or seigniorage imposed renders the price of bullion and coins practically the same, since conversion from one to the other is open and free.