precious metals or liabilities issued by hegemon countries) has all but disappeared ever since state monies have become so by fiat – convertibility of coins and banknotes into silver or gold, and then into dollars, was suspended long ago, and central banks reserves are unredeemable.1 Therefore, while these monies are still allocated as debt in public finance statistics and central bank financial statements, they are not debt in the sense of carrying obligations that imply creditor rights. State money is not debtĬonvertibility into ‘higher’ forms of value (e.g. And why is it that the same instrument is a debt liability when it is issued by the state, and it is not when it is issued by the private sector?Ī correct accounting view of money allows us to address these issues in turn.Which obligations derive for commercial banks on the large share of demand deposits that are never converted into cash or central bank reserves (not even during times of severe financial crisis)?.Which obligation derives for a central bank from the rights entertained by the holders of banknotes or by the banks holding reserves?.Which obligation derives for the state from the rights entertained by the holders of coins?.Debt involves an obligation between lender and borrower as contracting parties, but then: In fact, a correct application of the general principles of accounting raises fundamental doubts about the above conceptions of money. And commercial bank money (demand deposits) are accounted as debt in the financial statements of the issuing banks, while cryptocurrencies are not liabilities of any individuals or institutions if they are created by private entities, but are debt liabilities if they are issued by central banks (CPMI, 2015). Similarly, banknotes issued by central banks and central bank reserves are accounted for as central bank debt to their holders. Coins circulating as legal tender in national jurisdictions are treated as debt liabilities of the issuing states and are reported as a component of public debt under national accounting statistics (ESA 2010).
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