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

46 Pages Posted: 23 Dec 2020

See all articles by Michael Kumhof

Michael Kumhof

CEPR

Jason Allen

Humboldt University of Berlin

Will Bateman

Australian National University, Law School

Rosa M. Lastra

Centre for Commercial Law Studies, Queen Mary University of London

simon gleeson

Clifford Chance

Saule T. Omarova

Cornell University - Law School

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2020

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.

JEL Classification: E41, E42, E44, E51, E52, E58, G21, H61, H63, K0, K11, K12

Suggested Citation

Kumhof, Michael and Allen, Jason and Bateman, Will and Lastra, Rosa M. and gleeson, simon and Omarova, Saule T., Central Bank Money: Liability, Asset, or Equity of the Nation? (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3753921

Michael Kumhof

CEPR ( email )

London
United Kingdom

Jason Allen (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Will Bateman

Australian National University, Law School ( email )

Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://law.anu.edu.au/people/will-bateman

Rosa M. Lastra

Centre for Commercial Law Studies, Queen Mary University of London ( email )

67-69 Lincoln's Inn Fields
London, WC2 3JB
United Kingdom
+44 20 7882 8070 (Phone)
+44 20 8980 8101 (Fax)

HOME PAGE: http://www.law.qmul.ac.uk/staff/lastra.html

Simon Gleeson

Clifford Chance

Saule T. Omarova

Cornell University - Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

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