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Is the Financial System Fit for Purpose?
 Research Project

Legal and Economic Conceptions of Money

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Principal Investigator: Professor Rosa Lastra

Professor Dr Rosa María Lastra is the Sir John Lubbock Chair in Banking Law and Chair of the Institute of Banking and Finance Law the Centre for Commercial Law Studies (CCLS), Queen Mary University of London. She is a member of the Monetary Committee of the International Law Association (MOCOMILA), founding member of the European Shadow Financial Regulatory Committee (ESFRC), research associate of the Financial Markets Group of the London School of Economics and Political Science, member of the European Banking Institute (EBI) and member of the European Law Institute (ELI). She is a member of the Monetary Panel of the European Parliament since 2015.

Co-Investigators: Dr Jason Grant Allen (HU Berlin), Simon Gleeson (Clifford Chance), Dr Michael Kumhof (Bank of England), Professor Saule T. Omarova (Cornell), and Dr Will Bateman (Australian National University).

Project Summary

This project started with the question: What is money today? Money is changing—more quickly perhaps than ever before, accelerated in particular by developments in digital technology. The forms of money, pathways and processes of money’s creation, and the role of public and private actors in that process are both being renegotiated in political fora and being challenged by market developments. Nothing illustrates this more clearly than the rise of “shadow money”, i.e. an increasingly diverse set of digital payment systems that operate alongside the conventional monetary system.


The intuition underlying this project is that the concept of money was of interest both to law and to economics, and that both disciplines play an essential role in explaining the concept—and drawing lines between, for example, different types of money or money and its “cognates”. Rather than assuming that these two disciplines simply study a common phenomenon from orthogonal points of view, however, the interdisciplinary project team sought to explore the ways that the law constitutes economic phenomena. This strikes a different path to much of the classical “law and economics” literature, although it resonates with approaches such as “law and finance” or “law and political economy”, as well as certain critical realist approaches within economics.


Nothing illustrates the project better than its major written output, a Bank of England staff working paper on Central Bank Money: Debt, Equity, or Asset of the Nation? This paper questions the conventional accounting and economic wisdom that central bank money represents a “liability” of the central bank. Taking a fine-grained legal analysis of central bank reserves and cash, we ask whether the legal indicia implied by a “liability” are actually present. We find that they are not—and that neither of the other conventional accounting categories are a perfect fit, either. We argue that central bank money, as public financial infrastructure, requires sui generis accounting treatment, and should not be treated in macro-economic policy debates as a “debt” of the central bank. This impacts on policy measures like quantitative

easing as well as on proposals for central bank-issued digital currency, which involves new kinds of central bank balance sheet expansion.


The project has been very productive, with many workshops and research communication events and several written outputs in the pipeline. It is really the first stage of a much larger programme and we hope to continue our work, and our collaboration, in the future.


Blogs and Videos

Working Paper

Central Bank Money: Liability, Asset, or Equity of the Nation?

Michael Kumhof, Jason Allen, Will Bateman, Rosa Lastra, Simon Gleeson, Saule Omarova | November 25, 2020

Lastra Working Paper
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