Defending the Orthodoxy: Central Bank Money as Liabilities: A Reply to Will Bateman and Jason Allen, ‘The Law of Central Bank Reserve Creation’ (2022) 85(2) MLR 401
comment Defending the Orthodoxy: Central Bank Money as Liabilities: A Reply to Will Bateman and Jason Allen, ‘The Law of Central Bank Reserve Creation’ (2022) 85(2) MLR 401 Despite their importance in modern financial systems, central bank reserves have uncertain legal origin. Recently, Will Bateman and Jason Allen suggested a bifurcated view of reserve creation which specifies a ‘deposit pathway’ and a ‘transaction pathway’. I argue that this is misconceived, and that central banks create all reserves by issuing debt. Shukri Shahizam
Executive Summary
This article defends the conventional view that central bank money constitutes a liability, in response to an alternative perspective proposed by Bateman and Allen. The author, Shukri Shahizam, argues that central banks create reserves by issuing debt, rejecting the suggested 'deposit pathway' and 'transaction pathway' distinction. The article contributes to the ongoing debate on the legal nature of central bank reserves, emphasizing the importance of understanding their origin and implications for the financial system.
Key Points
- ▸ Central bank reserves have uncertain legal origin
- ▸ The author rejects the 'bifurcated view' of reserve creation proposed by Bateman and Allen
- ▸ Central banks create reserves by issuing debt, according to the author
Merits
Clear Argumentation
The author presents a well-structured and logical argument, effectively challenging the alternative perspective and supporting the conventional view of central bank money as a liability.
Demerits
Limited Engagement with Counterarguments
The article could benefit from a more detailed consideration of potential counterarguments to the author's position, enhancing the overall robustness of the argument.
Expert Commentary
This article contributes to the ongoing discussion on the legal nature of central bank reserves, highlighting the importance of a nuanced understanding of their origin and implications. The author's argument is well-reasoned, but could benefit from a more detailed engagement with counterarguments. The article's conclusions have significant implications for monetary policy and regulatory frameworks, emphasizing the need for a deeper understanding of central bank reserves and their role in the financial system.
Recommendations
- ✓ Further research should be conducted to explore the implications of the author's argument for monetary policy and regulatory frameworks
- ✓ The development of more effective prudential regulations should take into account the nature of central bank reserves and their creation
