Why would an Olympic Committee purchase the seigniorage of its gold coins?

I am researching the 1988 Seoul Olympics commemorative coins, typical of my central obsession with Korean numismatics...

A very rare book that has a chapter about these coins says that the Seoul Olympic Committee (not the IOC, but the Korean's national Olympic committee) decided to purchase the seigniorage of all of the gold coins in this Olympic coin series. And only the gold coins.

The Seoul Olympic Committee made money from the entire series (gold, silver, nickel, and copper-nickel coins) by adding a surcharge to the cost of the coins when sold. The surcharges were shared with the distributors. The Seoul Committee did not receive the seigniorage of these coins from the Korean government as a source of funding.

The Committee used private marketeers to sell the coins, since the Bank of Korea didn’t (and still doesn’t) have a huge mailing list of customers to sell the coins themselves, unlike the US Mint, which is how the 1984 LA Olympics coins were sold.

Also, the private marketers paid $110 million-dollars to the Seoul Committee for the exclusive rights to sell the coins overseas, AND the marketers put up the money to purchase the gold to make these gold coins.

The gold coins of this commemorative series were, of course, the higher denominations: 50,000-Won (each containing one whole Troy ounce of gold), and 25,000-Won (1/2 Troy ounce of gold). The coins were 92.5% gold.

Why would the Olympic Committee want to purchase the seigniorage of the gold coins of its commemorative coin series?

 

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This is a statement based purely on hypothesis, but, since no one replied...

I think that, logically, the SOC expected high demand for the gold coinage. Especially with the release of the $5 1988 commemorative coin, they expected popularity of their gold coinage abroad in connection with the US issue-
https://www.pcgs.com/coinfacts/coin/1988-w-5-olympic-dcam/9631
Another reason for segniorage only on the gold coinage could be an opportunity to receive larger premiums possibly based on their lower mintage.

Again, this is a conjecture. So, don’t take it as a fact.

 

You do realize that segniorage is different than surcharge, right?

segniorage is the difference between the face value of the coin and the cost to manufacture. When a coin is monetized somebody - usually the mint or the treasury books that gain to an asset account.

If the coin is ultimately destroyed, the difference between the face value and whatever is recovered from metal is supposed to be to ducted from that asset account creating profit.

So what was the value of an ounce of gold at the time these coins were minted?

In 1988 gold was between $470 and $492 per t oz and there were 855.8 won to the dollar. If that's right then the troy ounce coin was worth 410000 Won. And there wouldn't have been any segniorage.

With the US commemorative coin programs you don't get paid the surcharge until you've covered the cost of good sold in the manufacturing.

Maybe that's how they're using the term - they paid for the manufacturing rights they paid for the discounted price of the coin and they paid all the manufacturing charges... That gives them a fixed value for cost of goods sold and whatever they made less sg&a would be their profit for the games.

 

Sorry for the late reply, @GDJMSP , @Burton Strauss III , and @Legomaster1 , but I just got back from Korea on a research trip where I got some very decent access to the information that I need for my book, as well as interviews with the former and current lead Design/Engraving Team General Managers at the Korean Mint. This is the Korean equivalent to meeting and interviewing, say, John Mercanti and Joe Menna. They showed me around the design and engraving room. I saw some plasters being worked on(!) for upcoming commemorative coins and some past ones that I recognized used as decorations around the office. We also met some of the working engravers and designers (the designer of the current 50,000-Won and 10,000-Won banknote came in to serve ice coffees!).
I also met with the president of the premier auction house in Korea to request permission to use his auction images. I am a very lucky person to have had the access that I did on this trip. The Mint and Bank of Korea are very uncompromising when it comes to getting images of dies, plasters, and original design sketches of the early (1960s) coins, and original documents, but I am very lucky nonetheless...They did however give me their own, not-for-public internal publications (Mint histories that they publish every 10 years. I got the 2001 and 2011 histories, chocked full of detailed information on the development of the Mint).

To answer your questions/comments:

Well, it seems that people have different definitions of seigniorage, that's for sure! I won't belabor this point, but seigniorage was used to finance the 1972 Munich Games, and those coins were never used as currency, either, but the Munich Olympic Committee got funding from this source anyway. How did that happen?

You want your head really spun around? Look up the term "Monetary Seigniorage:"

-Monetary seignorage, where sovereign-issued securities are exchanged for newly minted bank notes by a central bank, thus allowing the sovereign to 'borrow' without needing to repay.[3] However, monetary seignorage refers to the sovereign revenue obtained through routine debt monetization, including expanding the money supply during GDP growth and meeting yearly inflation targets.[3]
Seigniorage is a convenient source of revenue for some governments. By providing the government with increased purchasing power at the expense of the public's purchasing power, it imposes what is metaphorically known as an inflation tax on the public."

No, there would have been gold coins anyway, Doug, as it was part of the commemorative-coin issue 'master plan' at the Bank of Korea long before the marketers were chosen. I don't know all the details, and that's probably been lost to history, but the marketers probably added this to sweeten the deal, and probably because they had some inroads with Samuel Montague, the British supplier of the gold.

Here's the original Korean, from the book, "Korean Commemorative Coins," (2006) authored by former designer, Jo Byeong-soo, and the appointed Art Director of these 1988 Seoul Olympics coins:

"또한 서울올림픽조직위원회가 기념화를 한국은행으로부터 인수할 경우 금화에 한하여 액면금액 이외에 제조비에서 액면을 차감한 금액을 별도로 한국은행에 지급키로 하였다."

Translated, it says:

"Also, in the case of the gold commemorative coins that the Seoul Olympic Organizing Committee acquired from the Bank of Korea, in addition to the face value of gold coins, the Olympic Committee decided to pay the Bank of Korea the amount of the deduction of the face value from the manufacturing cost."

Sounds like seigniorage to me, Doug.

 

More about seigniorage:

Isn't the money gained through printing money or profiting off of securities basically the same as seigniorage (i.e., Total - Cost = Profit), except it's not specifically about coins?

Take a look at these:

 

Doug, I think your definitions of "seigniorage" and "surcharge" are different from how I learned them in regards to commemorative coin funding for the Olympics.

Take a look at these definitions of Seigniorage and surcharge below. Surcharges are a "markup" added ON TOP of the total cost of manufacturing and face-value of the coins.

Take a look at the definitions that I am using. ("OCOG" means "Olympic Committee Organizing Group," basically the national organizers of any given Olympics):

 

But do you see how the government can RENOUNCE the seigniorage, ie. not make the "receiver" pay for the coins?

That's the SEIGNIORAGE FUNDING MODEL, Doug!

The USA has always only used surcharge funding for US Olympics coins.

In the 1972 Munich Olympics case: The German government handed over the coins that the German Mint made to the Munich Olympic Committee. The Committee sold their coins at face-value, with no markup in the form of a surcharge added on top of the sale prices to the customers. The German government did NOT ask to be "paid back" for the coins. They SURRENDERED THE SEIGNIORAGE. THAT's how the Germans funded their Olympic and post-Olympic expenses in that Olympics.

Does that make sense? Good.

SO: My OP question still stands. Why would an Olympic organizing committee want to purchase the seigniorage of only the gold coins in its commemorative coin program?

 

Got it, Doug.

Thanks for the conversation here.

This is complicated, so that's why I was wondering why the Korean author wrote that only in the case of the gold coins, they basically "bought them from the government."

 

By the way, the one ounce (50,000-Won) gold coins' issue price at the time was $750 USD.

 

First off thanks for posting this I'm glad you had a great trip and way cool.

I had a thought that came to me as I was sitting here patting the cat and reading your question again... By providing the gold and paying the manufacturing cost don't they basically have contract manufacturing and total control of what they can sell them for?

 

Yes, I think that's part of it. But "buying the seigniorage" of the gold coins opens up another question for me. I'll explain.

In an earlier episode concerning a previous set of "pre-Olympic" coins issued in 1982 and 1983, the Seoul Olympic Committee attempted to receive "seigniorage and surcharge funding" from the sale of the coins (see Option "C" in the different funding formulae from the sale of Olympics coins in Post #8, above). I wrote an article about these "pre-Olympic" coins, on page 42 of this journal:https://issuu.com/jeandigitala1/docs/the_fourteenth_issue_of_jean

In that article, you can see that they actually passed legislation that seigniorage funding would become the funding formula. So it was the law by 1983.

However, the Olympic Committee never got seigniorage funding from those "pre-Olympic" coins. Bank of Korea sources and newspaper sources do say that surcharges were added upon the sale of the coins.

I couldn't find any news articles as to why seigniorage funding failed for the "pre-Olympic" coins. However, the Bank of Korea was fighting the seigniorage funding model from the beginning by citing their own central banking laws, according to a source, so I'm guessing that's the reason.

Now, the coins I'm concerned about in this thread are the "official" 1988 Seoul Olympics coins that were issued in 1987 and 1988. This Korean author (former currency designer) wrote that (paraphrasing) 'the Seoul Olympic Committee purchased the seigniorage from the Bank of Korea only in the case of the gold coins.'

That might seem to indicate that the Olympic Committee did NOT "buy the seigniorage" for all the millions of other non-gold coins made in this Olympic commemorative issue. In other words, for the "official" 1988 Olympics coins, the Seoul Committee got both seigniorage and surcharge funding for the non-gold coins.

I cannot find information that would confirm the overall Olympic funding formula from the sale of the non-gold coins: Was it just surcharge, or seigniorage and surcharge? I gotta keep digging.

 

You are in a maze of twisty little passages, all different...