The Bank of Amsterdam and the limits of fiat money

Wilko Bolt, Jon Frost, Hyun Song Shin and Peter Wierts

No 1065, BIS Working Papers from Bank for International Settlements

Abstract: Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global games approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity renders fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.

Keywords: central banks; negative equity; fiat money; trust (search for similar items in EconPapers)
JEL-codes: E42 E58 N13 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-his, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The Bank of Amsterdam and the Limits of Fiat Money (2024)
Working Paper: The Bank of Amsterdam and the limits of fiat money (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1065

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