Paradox #61
The Money-Printing Profit We Never Asked For
→ Four other sovereign states share a currency with their large neighbour and receive an explicit, formula-driven seigniorage payment in return. Bhutan has shared a currency with India for 52 years and has never asked.
Referenced as sidebar in Chapter Six
Annual compensation South Africa pays Lesotho, Eswatini, and Namibia for rand circulating in their economies (FY 2023/24)
R1.4 billion across the three states
formula: 2/3 × SA 10-year government stock yield × rand-in-circulation
Annual compensation India pays Bhutan for INR circulating in Bhutan
Zero
The full numbers
The Common Monetary Area (CMA) — South Africa, Lesotho, Eswatini, Namibia — runs on a 1992 Multilateral Monetary Agreement that explicitly compensates the three smaller members for the seigniorage South Africa earns on rand circulating outside its own borders. The formula is mechanical: annual compensation = (2/3 × annual yield on most recently issued long-term SA government stock) × (rand estimated to be in circulation in the member country). The 2/3 ratio is a negotiated discount on the full yield; the rand-in-circulation estimate is updated bilaterally. Lesotho received M157.2M (FY 2023/24) → M395.2M (FY 2024/25). Eswatini’s seigniorage receipts equal 44.1% of the Central Bank of Eswatini’s total comprehensive net income (FY 2021/22; was 58.1% in FY 2019/20). For Lesotho/Eswatini/Namibia combined: R1.4 billion FY 2023/24.
Applied to Bhutan: India 10-year G-Sec yield (May 2026) = 7.12%. INR estimated in Bhutanese circulation, triangulated three ways (cash-stock parallel, trade-flow float, tourism flow) = INR 10B (low) / INR 18B (mid) / INR 30B (high). CMA-formula annual claim:
| Scenario | INR in circulation | Annual claim (Nu) | USD equivalent |
|---|---|---|---|
| Low | INR 10B | Nu 475M | USD 5.6M |
| Mid | INR 18B | Nu 855M | USD 10.1M |
| High | INR 30B | Nu 1,425M | USD 16.8M |
| ”Generous-CMA” upper (Rossouw-adjusted) | ~INR 29–48B | Nu 1.5–2.5B | USD 18–30M |
Against Bhutan’s annual GoI grant (Nu 22.88B for FY 2026/27), the mid claim equals 3.74%; the high claim 6.25%. Against RMA’s estimated annual investment income on its CC reserve pool (~Nu 4B), the mid claim is ~21% of that flow. Against Bhutan’s tourism SDF revenue (Nu 3.95B in 2025), the mid claim is ~22%.
Imagine this
A senior RMA economist sits in the bilateral mid-cycle review meeting in 2027. The Indian counterparty across the table runs through the FY 2027/28 grant trajectory: Nu 23-24B continuing, conditional on the usual project-by-project allocation. The Bhutanese side raises a technical question: would India consider re-classifying Nu 855 million of the existing grant — not adding to it, just re-classifying it — as formula-driven seigniorage compensation indexed to the India 10-year G-Sec yield, mirroring the CMA Multilateral Monetary Agreement?
The Indian counterparty asks where the precedent is. The Bhutanese side hands across a single page: the MMA 1992 text, the Lesotho FY 2024/25 budget line, the Rossouw 2023 BusinessDay article. “Four sovereign states already operate this with South Africa. We are proposing nothing new — just bringing our arrangement into structural alignment with international practice. The headline grant amount need not change in year 1.” The Indian counterparty takes notes and refers it to the Ministry of Finance Bhutan desk. The conversation could have been had 30 years ago. It still has not been had.
Where this came from
The 1974 introduction of the ngultrum was framed entirely as a sovereign gesture by Bhutan, not as a bilateral monetary arrangement with reciprocal obligations. The peg was set at 1:1 on day one; INR was retained as co-legal tender for operational convenience; the seigniorage that India would earn on the INR circulating in Bhutan was never explicitly recognised as a transferable line item. The four CMA states by contrast inherited their formula from a deliberate negotiation: Lesotho and Swaziland in the 1980s explicitly raised the seigniorage question with South Africa and got it codified in 1986. Bhutan never raised it. The omission compounded silently for 52 years.
Why this matters now
India’s grant flow to Bhutan has grown from ~USD 100M (2010) to USD 270M (FY 2024/25) but is not formula-driven. In any future Indian fiscal-tightening cycle, the grant is exposed to discretionary cuts. A CMA-formula component would lock in a Nu 900M–1.5B/year baseline regardless of broader grant decisions — it costs India nothing in year 1 (just re-labelling within the existing flow) and gives Bhutan a protected, indexed minimum that automatically escalates with Indian yields.
The negotiation windows are narrow: mid-13th-FYP review (~2027) for working-paper introduction, 14th-FYP support negotiation (~2029) for formal integration, any GoI grant-cut scenario for defensive reframing, GMC monetary architecture finalisation (2026-28) if GMC’s INR flows scale materially.
What it should be
- An existing implicit subsidy, made explicit and indexed to G-Sec yields.
- Formula-driven (so it survives political cycles) rather than discretionary (so it doesn’t).
- Compatible with continued 1:1 peg, INR co-legal-tender, and full RBI swap support — additive to the existing architecture, not a replacement.
How others do it
- South Africa → Lesotho: M157.2M (FY 2023/24) → M395.2M (FY 2024/25) under MMA 1992.
- South Africa → Eswatini: Recorded as central-bank revenue; 44.1% of Central Bank of Eswatini’s total comprehensive net income (FY 2021/22).
- South Africa → Namibia: Embedded in Bank of Namibia other operating income; negotiated before Namibia issued its own currency in 1993.
- Bhutan: No formal seigniorage compensation in 52 years of sharing currency with India.
The question we should be sitting with
If four sovereign states already operate a CMA-style seigniorage compensation formula with their dominant currency-anchor, what is the structural reason Bhutan has never even tabled the conversation with India? Is it sub-optimal humility, or sub-optimal diplomacy, or both?