Katie Thornton

This is Philip Diehl.

These days, he's the president of U.S.

Money Reserve, a coin seller.

A few decades ago, though, he was director of the U.S.

Mint.

And he says to understand seniorage, you have to think of the Mint as a business, a business whose product is coins.

So seniorage is the profit the mint makes from selling a coin for more than a cost to produce it.

Like Philip said, simple.

And me.

We all end up paying full face value for these coins, thanks to a chain of sale that starts with the Mint's largest customer, the Independent Federal Reserve Bank.

Let me translate, at the risk of making this part a little too simple.

The mint makes coins, again, let's say quarters, as cheaply as it can.

The banks then buy those quarters at face value from the mint.

Businesses buy quarters at face value from banks.

And when we get change from the cash registers at those businesses, we get those quarters.

So everyone in that sequence, banks, businesses, people, pay 25 cents for something that the mint originally made for much, much less.

So in the end, the only one turning a profit is the U.S.

government.

But the truth is, this approach only worked well for a little while.

So the Mint futzed with the metal ratios again, just trying to make this thing for even cheaper.