Seven Issues Facing Central Banks Today

The central bank is a fiscal and financial agent of the government, its beneficial owner. Their accounts should be consolidated and there should be no private ownership of central bank equity. Central banks should have a symmetric profit and loss-sharing or recapitalisation arrangement with the government. Central bank money is a liability in name only. This should be recognised in the intertemporal budget constraints of the central bank and of the consolidated State. The fiscal theory of the price level is a logical fallacy. Average inflation targeting is potentially costly and has no support from economic theory. Operationally independent central banks will monetise public debt to prevent sovereign default and associated serious financial instability, even when this is incompatible with the price stability mandate. The effective lower bound must be eliminated by abolishing paper currency and creating an interest-bearing retail central bank digital currency, usable in online and offline transactions, and without caps on the size of accounts or transactions.