This article continues my series of articles on central banks as banks. Central bank balance sheets (in the modern era, at least) are relatively simple. There is a split between banks with a currency peg and those without. After that, the key point to keep in mind that the minimum size of the central bank balance sheet is not under the control of the central bank — other actors create a minimal demand for their liabilities. The only freedom of action for central bankers is growing beyond the minimum, which they did not do before the days of Quantitative Easing (QE). The article finishes off with a discussion of consolidation.
Regarding "holding an asset on the balance sheet for the redemption promise to be credible": As for gold, for instance, by holding some very large ratio of an asset for this reason alone beyond concrete current needs, one reduces the availability of gold by buying it all up, increasing the demand for gold versus the dollar, causing the problem one has tried to solve, I am thinking.
“ Central banks could issue bonds — but they generally do not. One way of ending the silliness of governments pretending that they have to listen to “bond vigilantes” is to have the central bank issue bonds. This is seen as unacceptable as it would put a lot of fiscal conservatives out of work.”
Regarding "holding an asset on the balance sheet for the redemption promise to be credible": As for gold, for instance, by holding some very large ratio of an asset for this reason alone beyond concrete current needs, one reduces the availability of gold by buying it all up, increasing the demand for gold versus the dollar, causing the problem one has tried to solve, I am thinking.
“ Central banks could issue bonds — but they generally do not. One way of ending the silliness of governments pretending that they have to listen to “bond vigilantes” is to have the central bank issue bonds. This is seen as unacceptable as it would put a lot of fiscal conservatives out of work.”
Brilliant comment.