Das Nichts ist Zentralbankgeld. Anmerkungen zu Dirk Ehnts' Buch über Geld und Kredit[The Nothing is Central Bank Money. Comments on Dirk Ehnts' book on Money and Credit]

The importance of liquidity for banks and even for nation states has been demonstrated once more by the last series of global crises, of which the repercussions still are being felt ten years later. It is a common understanding that a shortage of liquidity leads to insolvency. Under the auspices of central banks and a two-level monetary system, the connection between lost liquidity and insolvency could be cut. If central banks are lenders of last resort, they are capable of removing any problem of illiquidity and insolvency. This is a thesis propagated by Dirk H. Ehnts (2016), who presents a monetary theory beyond the one we find in textbooks. Ehnts extends his super-optimistic view even to states that can – according to him – solve any crisis if they are allowed to enhance their spending. In his theoretical approach to monetary theory, Ehnts puts the examination of balance sheets in the center of his deliberations. The whole body of arguments can be found in his book, “Money and Credit,” which is written in German, as is this analysis of the new perspective to modern money. It results in a list of more than forty flaws - wrong assertions, inherent contradictions and unfounded consequences. The main problems of the balance sheet-centered analysis are these: (i.) Balance sheets are identities. They cannot inform us about causal relations and action sequences. It is an illusion to hope that balance sheets can highlight the functioning of the monetary system. Ehnts’ book is filled with statements that are not consequences of his balance sheets, but untested hypotheses being presented as plausible claims about reality. (ii.) The balance sheet approach is masking the legal dimension of financial interactions. For instance, in credit agreements it is accepted by the debtor to pay back the sum. Otherwise, he or she faces a compulsory execution. According to Ehnts, only one thing happens: the creditor loses his or her claim. (iii.) The theoretical conception ignores the role of the collateral, which is a limiting factor to central bank money and serves as an anchor to stabilize its value. High quality securities are scarce and therefore real money cannot be delivered unlimited in size. (iv.) The subject matter of a credit is not specified correctly in the theoretical framework. According to the author, it can even be jelly babies. But it is money emitted by central banks. No complete explanation of the creation of money by central banks can be found in the whole book. The availability of central bank money is an ignored prerequisite to the creation of money by commercial banks. If money could be created out of nothing, like it is claimed, no bankruptcy would have ever happened. The rationale of Ehnts’ policy advice has as many holes as Swiss cheese. It is not the base upon which serious policy recommendations can be built.