This paper concentrates on the deduction of the taxation mechanism of seigniorage through a perspective of
money creation.
Government revenue collected from seigniorage equal to the product of the money base stock and the nominal rate in an economy without growth and monetization. If the economic growth and monetization were included in our model the tax rate of seigniorage would be the sum of the contribution rate of growth, the rate of monetization and the nominal rate. For the traditional definition of the seigniorage, the excise base of it is the money base. However, if we extended the conception of seigniorage to the range of Government s all financial debts, the excise base of the sum of the nominal amount of all "debt-claims" certificates issued by creditors. The extraction rate of the first concept of seigniorage above is the nominal rate, but for the latter two concepts of seigniorage the excise rate is the rate of the "surprise" price rise. Seigniorage has both positive and negative impacts on the economy. It could incur two kinds of net social
welfare costs: reducing the residual of holding monetary balance and the disruptive or redistributive aspects of inflation . At the same time, the existence of seigniorage provides an institutional mechanism of elastic monetary supply for the society. It induced the central bank' s monetary policy function. It can also prevent a growing economy form deflation.