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The Bank of Amsterdam and the limits of fiat money

Author

Listed:
  • Wilko Bolt
  • Jon Frost
  • Hyun Song Shin
  • Peter Wierts

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.

Suggested Citation

  • Wilko Bolt & Jon Frost & Hyun Song Shin & Peter Wierts, 2023. "The Bank of Amsterdam and the limits of fiat money," Working Papers 764, DNB.
    • Handle: RePEc:dnb:dnbwpp:764
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    File URL: https://www.dnb.nl/media/tr4pv31z/working_paper_no-764.pdf
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    References listed on IDEAS

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    Cited by:

    1. Matteo Bonetti & Dirk Broeders & Damiaan Chen & Daniel Dimitrov, 2024. "Central Bank Capital and Shareholder Relationship," Working Papers 809, DNB.
    2. Bertsch, Christoph, 2023. "Stablecoins: Adoption and Fragility," Working Paper Series 423, Sveriges Riksbank (Central Bank of Sweden).
    3. Tomas Adam & Ales Michl & Michal Skoda, 2023. "Balancing Volatility and Returns in the Czech National Bank's Foreign Exchange Portfolio," Research and Policy Notes 2023/01, Czech National Bank.

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    More about this item

    Keywords

    central banks; negative equity; fiat money; trust;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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