A Justice of the peace in the southern Italian town Lecce has decided that the Italian Central Bank's practice to retain the seignorage on paper money for its own profit is illegal and that the money should be turned over to its rightful owners - the citizens of Italy. The amount in question is a total of 5 billion Euro for Italian Lira paper-money issued in the time period from 1996 to 2003. After 2003, the issue of paper money became part of the European Central Bank's mandate. Seignorage is the difference between the cost of producing banknotes and the nominal value of the notes.
The legal case was sustained by the Italian consumers association ADUSBEF, which deals especially with consumer implications of banking, financial and postal services as well as insurances. Elio Lannutti, the president of the association says that while the case is for one individual only, it opens a way for restitution of all the money illegally put into its own coffers by the Italian Central Bank, which is owned by Italian commercial banks. Lannutti says "we would like the money to go to the victims of financial cracks" adding that the government fund for that purpose is woefully lacking behind.
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A bill to be introduced into the Italian Parliament is being prepared according to Giorgio Benvenuto of the DS center-left party.
In his sentence, the Justice of the Peace, Cosimo Rochira, explains the historical roots of seignorage: "When money was made of gold or silver, citizens could go to the mint with ingots of metal and get them transformed into coins. The sovereign, guaranteeing the value of these coins, got to keep a certain percentage of the metal, and that was called seignorage."
An expert opinion filed in the case says that the profit from money, which the Central Bank puts into circulation should rightfully go to the State, not to groups of private investors - the commercial banks - which are the shareholders of the Central Bank. The powers of the sovereign of old are today vested in the government and the people, not banks and insurance companies. In consequence, the judge ordered the Central Bank to pay the plaintiff 'his share' of the illegallly obtained profits from seignorage - 87 Euro.
Multiplying that amount by around 58 million, the number of Italian citizens, the liability for the Central Bank could be a whooping five billion Euro.
Payment is not automatic, however, so the consumers association is planning further cases with hundreds more citizens asking their share - until a general repayment scheme can be worked out.
Attorneys for the Central Bank have opposed the case, calling the demands "unfounded". There was no immediate comment from the Central Bank's press office.
The original report in Italian was published in La Repubblica