Central bank capital and trust in money: lessons from history for the digital age

Sarah Bell, Jon Frost, Boris Hofmann, Damiano Sandri and Hyun Song Shin

No 146 in BIS Papers from Bank for International Settlements

Abstract: Historically, central banks have at times operated successfully with negative equity. This indicates that a negative equity position of the central bank can be fully consistent with preserving trust in money. In addition, there is no evidence of any systematic relationship between the equity position of central banks and their ability to meet their monetary policy objectives. However, the case of the Bank of Amsterdam in the late 1700s, and the emerging market crises of the 1980s and 1990s, provide cautionary tales on the importance of fiscal backing in upholding trust in money. The pivotal economic determinant behind the trust in money is the portfolio decisions of private holders of central bank money. In particular, there are potential "tipping points" when they abandon existing forms of money in favor of alternatives.

Date: 2024 Written 2024-06
ISBN: 978-92-9259-768-9
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