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Central bank capital and trust in money: lessons from history for the digital age

Author

Listed:
  • Sarah Bell
  • Jon Frost
  • Boris Hofmann
  • Damiano Sandri
  • Hyun Song Shin

Abstract

Historically, central banks have at times operated successfully with negative equity. This indicates that a negative equity position of the central bank can be fully consistent with preserving trust in money. In addition, there is no evidence of any systematic relationship between the equity position of central banks and their ability to meet their monetary policy objectives. However, the case of the Bank of Amsterdam in the late 1700s, and the emerging market crises of the 1980s and 1990s, provide cautionary tales on the importance of fiscal backing in upholding trust in money. The pivotal economic determinant behind the trust in money is the portfolio decisions of private holders of central bank money. In particular, there are potential "tipping points" when they abandon existing forms of money in favor of alternatives.

Suggested Citation

  • Sarah Bell & Jon Frost & Boris Hofmann & Damiano Sandri & Hyun Song Shin, 2024. "Central bank capital and trust in money: lessons from history for the digital age," BIS Papers, Bank for International Settlements, number 146.
    • Handle: RePEc:bis:bisbps:146
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    References listed on IDEAS

    as
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