Different types of central bank insolvency and the central role of seignorage

Reis, Ricardo

A central bank is insolvent if its plans imply a Ponzi scheme on reserves so the price level becomes infinity. If the central bank enjoys fiscal support, in the form of a dividend rule that pays out net income every period, including when it is negative, it can never become insolvent independently of the fiscal authority. Otherwise, this note distinguishes between intertemporal insolvency, rule insolvency, and period insolvency. While period and rule solvency depend on analyzing dividend rules and sources of risk to net income, evaluating intertemporal solvency requires overcoming the difficult challenge of measuring the present value of seignorage.


  • thumnail for Reis_1415_06_with_cover.pdf Reis_1415_06_with_cover.pdf application/pdf 309 KB Download File

More About This Work

Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 1415-06
Published Here
June 19, 2015