From my recent Torrens Zoom call, I ran into questions about procedures in the government bond markets. The main question was whether I saw potential changes to the markets to improve things. The second was more of a concern about the complexity and opacity of the bond market.
Hi Brian. Thanks for the Torrens Q&A. I have a question about sovereign green bonds. If a monetarily sovereign country wanted to begin issuing green bonds that ostensibly are issued to exactly match the government's spending on certified environmental initiatives, what would you see as the benefits of this approach? Would this be an attractive product for bond purchasers?
"These are distinct because the government can issue bonds/bills in a permanent zero interest rate environment (although having a small positive yield of 0.25% or so would grease the wheels of the system)."
Why would paying anybody free money from the state grease the wheels? What public benefit is there to that?
The bonds/bills with a permanent zero interest is surely just the currency.
" They would need to borrow from private sector entities to finance their “money” holdings"
Not sure I follow.
Banks are agents of the central bank. The structure put forward by Warren is systemically equivalent to everybody banking at the central bank (which is ultimately all a CBDC is), but run on the balance sheets of the licensed banks. The central bank implicitly provides the necessary duration backing all bank assets. Since bank assets are regulated, that makes sense. Any bank asset the central bank isn't prepared to back shouldn't be a bank asset.
Banks hold deposits and capital matching their assets in a denomination, with the central bank being that depositor if everybody has gone elsewhere.
I don't see any need for a separate negotiable instrument from the actual denomination. If the central bank makes all deposits money, one of the central theses of MMT, then there is no need for a separate 'savings currency' (which is what bonds are) directly with the fiscal authority.
What structural issues do you see with the proposals Warren has put forward?
Hi Brian. Thanks for the Torrens Q&A. I have a question about sovereign green bonds. If a monetarily sovereign country wanted to begin issuing green bonds that ostensibly are issued to exactly match the government's spending on certified environmental initiatives, what would you see as the benefits of this approach? Would this be an attractive product for bond purchasers?
"These are distinct because the government can issue bonds/bills in a permanent zero interest rate environment (although having a small positive yield of 0.25% or so would grease the wheels of the system)."
Why would paying anybody free money from the state grease the wheels? What public benefit is there to that?
The bonds/bills with a permanent zero interest is surely just the currency.
" They would need to borrow from private sector entities to finance their “money” holdings"
Not sure I follow.
Banks are agents of the central bank. The structure put forward by Warren is systemically equivalent to everybody banking at the central bank (which is ultimately all a CBDC is), but run on the balance sheets of the licensed banks. The central bank implicitly provides the necessary duration backing all bank assets. Since bank assets are regulated, that makes sense. Any bank asset the central bank isn't prepared to back shouldn't be a bank asset.
Banks hold deposits and capital matching their assets in a denomination, with the central bank being that depositor if everybody has gone elsewhere.
I don't see any need for a separate negotiable instrument from the actual denomination. If the central bank makes all deposits money, one of the central theses of MMT, then there is no need for a separate 'savings currency' (which is what bonds are) directly with the fiscal authority.
What structural issues do you see with the proposals Warren has put forward?