Dr Will Bateman and Dr Jason Allen were recently invited to present their current work on central bank reserve creation to the General Counsel and legal departments at the NY Fed and the Bank of England on 23 January and 30 January respectively.

Will and Jason have identified a gap in the existing literature on monetary law, namely literature directly on the legal nature of central bank reserves. While this was perhaps understandable before Quantitative Easing, the expansion of central bank balance sheets in the past decade now calls for more targeted doctrinal engagement.

The thrust of the Bateman/Allen argument is that monetary law is still conceptually bound to the “deposit model” of reserve creation, whereby commercial banks deposit reserves (gold and gold certificates) with the central bank and reserves are thereby created from the creditor-debtor relationship that ensues. However, in contemporary conditions, reserves are generally created under a “transaction model” in which the central bank engages with private law transactions with willing counterparties in the securities market, and the reserves so created pass through into the broad money supply.

The paper, which is currently at the exposure draft stage, will now be circulated within the central banking audiences, and their feedback incorporated.