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The Bank of Amsterdam and the limits of fiat money

BIS Working Papers No 1065

Wilko Bolt, Jon Frost, Hyun Song Shin, Peter Wierts
BIS, 19 January 2023


Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global games approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity renders fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.


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