Central Bank Money: Debt, Equity or Asset of the Nation?

Date

2021

Authors

Kumhof, Michael
Allen, Jason
Bateman, Will
Lastra, Rosa
Gleeson, Simon
Omarova, Saule

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

Based on legal arguments, we advocate a conceptual and normative shift in our understanding of the economic character of central bank money (CBM). The widespread treatment of CBM as a central bank liability goes back to the gold standard, and uses analogies with commercial bank balance sheets. However, CBM is sui generis and legally not comparable to commercial bank money. Furthermore, in modern economies, CBM holders cannot demand repayment of CBM in anything other than CBM. CBM is not an asset of central banks either, and it is not central bank shareholder equity because it does not confer the same ownership rights as regular shareholder equity. Based on comparisons across a number of legal characteristics of financial instruments, we suggest that an appropriate characterization of CBM is as ‘social equity’ that confers rights of participation in the economy’s payment system and thereby its economy. This interpretation is important for macroeconomic policy in light of quantitative easing and potential future issuance of central bank digital currency (CBDC). It suggests that in robust economies with credible monetary institutions, and where demand for CBM is sufficiently and sustainably high, large-scale issuance such as under CBDC is not inflationary, and it does not weaken public sector finances.

Description

Keywords

Central bank money, currency, central bank reserves, central bank digital currency, quantitative easing, central bank balance sheet,, liabilities, assets, equity, government debt

Citation

Source

Cornell Legal Studies Research Paper

Type

Journal article

Book Title

Entity type

Access Statement

License Rights

Restricted until

2099-12-31