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

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

No 15521, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Central bank money; Currency; Central bank reserves; Central bank digital currency; Quantitative easing; Central bank balance sheet; Liabilities; Assets; Equity; Government debt (search for similar items in EconPapers)
JEL-codes: E41 E42 E44 E51 E52 E58 G21 H61 H63 K0 K11 K12 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (13)

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