Template-Type: ReDIF-Paper 1.0
Author-Name: Wilko Bolt
Author-X-Name-First: Wilko 
Author-X-Name-Last: Bolt
Author-Name: Jon Frost
Author-X-Name-First: Jon
Author-X-Name-Last: Frost
Author-Name: Hyun Song Shin
Author-X-Name-First: Hyun
Author-X-Name-Last: Song Shin
Author-Name: Peter Wierts
Author-X-Name-First: Peter
Author-X-Name-Last: Wierts
Title: The Bank of Amsterdam and the limits of fiat money
Abstract: Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global games approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity renders fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.
Creation-Date: 2023-01
File-URL: https://www.bis.org/publ/work1065.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1065.htm
File-Format: text/html
Number: 1065
Keywords: central banks, negative equity, fiat money, trust
Classification-JEL: E42, E58, N13
Handle: RePEc:bis:biswps:1065