Answering @DanielaGabor, @jryancollins, @JoMicheII, @PhilippaSigl, @ericlonners, @M_C_Klein, @izakaminska, @VMRConstancio, @JohnHCochrane. This thread led to an explosion of tweets difficult to follow. Some quick answers to the initial questions raised by @BJMbraun 1/5
CB is part of State finance and balance-sheet. CB money is a lot of things at the same time. It is a “ liability” in the sense that it is an asset for other agents. The holder has the property right to use it for payments (to other CB counterparts, including the Treasury). So 2/5
So, if the CB has losses on its assets it cannot use that “liability” to cover them. It affects its capital. Naturally, this can become negative. In recent decades a few CB of advanced countries have operated with negative capital 3/5
CB money (essentially bank’s reserves) is not a “liability” in the sense of a private debt entailing necessarily a financial costs. As @MacRoweNick tweeted it can even generate a direct revenue if negative rates are applied by the CB. It is also a source of seignorage revenue 4/5
So, the accounting treatment in the CB balance-sheet is correct and does not entail any “ deflationary bias” to CB policy. Bossone is not right on this, neither in the terms of his defence of “fiscal money”. 5/5
