What exactly is central bank money? A Bank of England £10 note is a promise by the bank of England to pay £10—a promise which can only be discharged by the delivery of another £10 note. Is that a debt owed by the Bank of England or not? And if we do not know what is going on here in the physical world, how do we get to grips with what will happen when the £10 note becomes a central bank digital cryptocoin?

In our article ‘Central Bank Money: Liability, Asset, or Equity of the Nation?’,  we address the question as to whether money created by a central bank can properly be regarded as a ‘debt’ owed by that central bank, or of the relevant sovereign. And, if it is not a debt, is it some other kind of legal obligation? If so, what exactly is it?

The work, undertaken as part of an ESRC-sponsored Rebuilding Macroeconomics project, aims at reintegrating legal and economic analysis of hybrid issues such as this, and is produced by a mixed team of lawyers and economists. Based on legal arguments, we advocate a conceptual and normative shift in the 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 in the economy as a whole. 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.


Michael Kumhof is Researcher at the CEPR and Centre for Macroeconomics.

Jason G Allen is a Senior Research Fellow at the Humboldt-Universität zu Berlin.

Will Bateman is Senior Lecturer at the Australian National University.

Rosa M. Lastra is the Sir John Lubbock Chair of Banking Law, Queen Mary University of London.

Simon Gleeson is Partner at Clifford Chance.

Saule T. Omarova is Beth and Marc Goldberg Professor of Law at Cornell University Law School.


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