#84 Andrew Berkeley, Richard Tye & Neil Wilson: An Accounting Model Of The UK Exchequer (Part 1)
Jan 20, 2021
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Andrew Berkeley, Richard Tye, and Neil Wilson discuss the UK Exchequer's accounting operations, government spending impact on the private sector, deficits, austerity measures, MMT, the UK monetary system, Exchequer structure, historical evolution, government bond issuance, debt management, and real resources for environmental efforts.
The consolidated fund in the UK plays a pivotal role in generating 'moneyness' through a hidden liability linked to the National Loans Fund.
The historical evolution of the Exchequer highlights its transition from a symbolic chess board account system to a structured financial entity aligned with the Bank of England.
The intricate financial system in the UK is driven by the interaction between government-issued Exchequer bills and corresponding assets held by the Bank of England.
Deep dives
The Concept of the Consolidated Fund as the Source of Money
The podcast delves into the concept of the consolidated fund as the source of financial wealth in the UK. By dissecting the financial liabilities and assets tied to the consolidated fund, it uncovers a hidden liability linked to the National Loans Fund that precisely matches any financial wealth in sterling. This revelation highlights the fundamental role of the consolidated fund in generating 'moneyness,' emphasizing its significance in the UK's financial framework.
Historical Evolution of the Exchequer and Bank of England Relationship
The podcast explores the historical evolution of the Exchequer, tracing its roots back to the Anglo-Norman period with its symbolic chess board account management system. It discusses the fundamental role of the Exchequer in accounting for government finances and its transition into a more structured system aligned with the Bank of England. The incorporation of the Exchequer's functions into the Bank of England and the eventual nationalization of the Bank further solidified the historic entwinement of these institutions.
Function of Exchequer Bills and Sterling in Money Creation
The discussion shifts to the interplay between Exchequer bills and sterling currency in money creation. It elaborates on the connection between government-issued Exchequer bills and the corresponding assets held by the Bank of England, such as treasury bills and gilts. This interaction forms a complex monetary system where the Bank of England utilizes government securities to issue base money, illustrating the intricate relationship between various financial instruments in the economy.
Government Securities as Central Bank Reserves
Government securities serve as the foundation of the financial system, acting as central bank reserves that the non-bank private sector can hold. These securities, which include gilts, Treasury bills, and other liabilities like overdrafts at the Bank of England, provide a secure store of wealth and underpin the entire monetary system. The issuance of government securities, previously managed by the Bank of England for monetary policy coordination, now falls under the debt management office's domain.
Contingencies Fund for Unauthorised Government Spending
The Contingencies Fund permits government spending exceeding the parliamentary authorization by a percentage of the previous year's expenditure. In response to urgent situations like the COVID-19 pandemic, the UK amended the Contingencies Fund Act in 2020 to expand spending leeway. This mechanism allowed swift access to funds for essential needs without the immediate requirement of detailed parliamentary approval, serving as a de facto overdraft of parliamentary authority to address pressing crises.
Patricia and Christian talk to the authors of a groundbreaking new study that details the internal accounting operations of the UK exchequer and the ultimate impact of government spending and taxing on the private sector.
Our episode 16, with Andrew Berkeley chatting with Warren Mosler and Tim Rideout in a noisy (sorry!) Glasgow pub: https://www.patreon.com/posts/41806207
Our episodes with Sam Levey on the economics of wartime mobilisation:
