Trying to get some intuition on this statement I came across while reading Miguel Didrauski's dissertation "Rational Choice and Patters of Growth in a Monetary Economy". My sense is that it has something to do with the fact that money comes about from the Federal Reserve's purchasing of government bonds from the banks, thereby "injecting" money into the financial system. Would love a better idea of why this classification as "non-interest bearing debt" makes sense.


Let’s unpack “government non-interest bearing debt,” assuming that we are talking about government-issued notes and coins (dollar bills). (This does not include other instruments in monetary aggregates, like bank deposits.)

  • Money is an instrument issued by the government.
  • It pays no interest.
  • This only leaves “debt.”

Are notes and coins debt of the Federal Government? If we look at national accounts, they are considered liabilities of the consolidated Federal government. Most people use “debt” and “liability” to be synonyms, but there are technical differences (that I will not attempt to cover here).

One could argue that money being a “liability” does not qualify it as being a “debt.” This just means that the quoted statement is sloppy.

Note that there is another component of the monetary base - deposits held at the Federal Reserve by banks (bank reserves). The Federal Reserve is a bank, and those deposits are a liability, which is exactly the same as deposits held at private banks.

Why can these instruments be considered liabilities? When someone pays a tax to the Federal Government, the money is transmitted to the Treasury. The money holding is cancelled out against the tax liability of the tax payer.

I have seen arguments online that government money does not qualify as being a liability (or debt) since there is allegedly no promise to pay anything. (The argument also implies that accounting standards are incorrect.) I disagree with that view, and would note that to be formally correct, one would need to change national accounting definitions.

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