Liability could be issued as zero-coupon irredeemable bonds

Sir, Simon Ward (Letters, November 13) states that Adair Turner’s proposal to fund government spending with newly created money “would involve the creation of more Bank of England reserves, which represent a liability of the state and bear interest”. But there is no reason that the new liability would have to bear interest, since it could be issued as zero-coupon irredeemable bonds, reads the letter by Fran Boait in Financial Times, 16th Nov 2014.

Here is a short extract:

Unlike government debt, these bonds would not create any financial obligations on the part of the government. As they create no obligations on the part of the issuer, then the debt burden will not rise.

Additionally, Daniel J Aronoff (Letters, November 13) writes that “Lord Turner’s proposal should be treated with caution” citing the danger of a resurgence in the money multiplier. However the Bank of England March 2014 Quarterly Bulletin debunked the money multiplier model as a way of understanding the determination of the money supply.

Read the whole letter here.