Abstract
Abstract This study analyzes the nature of money through the lens of the international principles of accounting and lays the foundations of what it calls the accounting view of money (AVM). Using international accounting principles, the AVM argues that the fiat monies issued by the state (typically, cash, banknotes, and central bank money) are not debt and that in fractional reserve regimes, only a share of commercial bank money can be regarded as debt. The AVM argues, instead, that state monies and the nondebt share of commercial bank money are net wealth of their holders and net worth (equity) of their issuers and determines how the seigniorage associated with money issuance should be accounted for correctly in the financial statements of the issuing institutions. The AVM points to the correct way to account for the various forms of money in the financial statements of the issuing institutions, clarifies what the different accounting treatments imply for a correct understanding of the concept of money, and evaluates the related economic and economic policy implications.
Highlights
This study reevaluates the nature of money through the lens of the international principles and standards of accounting and lays the foundations of what it labels as the Accounting View of Money (AVM), following our earlier preliminary contribution to the topic (Bossone, Costa, Cuccia, & Valenza, 2018)
In the case of commercial bank money, since no residual obligations are left for the issuing bank to fulfill beyond the liquidity that the bank makes available to its depositors on a fractional basis, the nondebt share of the deposits held with it can be entirely recorded as revenue in the financial statements
Based on the correct application of international accounting principles, this study has argued that fiat monies issued by the state – typically in the form of cash, banknotes, and central bank reserves – are not debt
Summary
This study reevaluates the nature of money through the lens of the international principles and standards of accounting and lays the foundations of what it labels as the Accounting View of Money (AVM), following our earlier preliminary contribution to the topic Proceeding separately for the monies issued by the state, on the one hand, and those issued by commercial banks, on the other hand, the AVM points to the correct way to account for them in the financial statements of the. While accounting practices vary across countries, and in particular across central banks (Archer & Moser-Boehm, 2013), this study takes the new Conceptual Framework for Financial Reporting (the Conceptual Framework) as a main reference, which underpins the International Financial Reporting Standards (IFRS). For an application of the money “sale” concept to today’s digital currencies and the related legal underpinnings, see Bossone (2021a)
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