Solving the Funding Problem with Central Bank Bonds and Government Currency
Summary
■ Abstract
This proposal revises the traditional fiscal structure that relies on government bond issuance and tax revenue, and presents a new funding model using central bank bonds and government currency.
This model aims to enable fiscal management while:
• Maintaining the primary balance
• Not relying on tax increases
• Strongly suppressing inflation
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■ 1. Problem Setting
Current fiscal management has the following structure:
• The government issues government bonds
• Government bonds are perceived as a future tax burden
• Pressure to increase taxes arises to maintain the primary balance
Result:
Pressure on people’s lives (decrease in disposable income)
Contraction of demand and economic stagnation
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■ 2. Essential Misunderstanding
Generally,
“Government debt = future taxes”
However, this is only one aspect of the structure.
In reality:
The government and the central bank, when linked, form a single structure.
Therefore,
The placement of liabilities (where they are accounted for) is designable.
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■ 3. Proposed Structure
■ Basic Model
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The central bank issues “central bank bonds.”
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The government underwrites them.
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The government issues government currency.
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That currency is used for fiscal spending.
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■ 4. Structural Change
Traditional:
• Government → Debtor
• Taxes → Repayment mechanism
Proposed:
• Central bank → Borrower
• Government → Currency issuer
The form of burden is transformed.
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■ 5. Primary Balance
In this model:
The government balances tax revenue and expenditure (PB = 0).
Additional expenditures are:
Funded by government currency issuance
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■ 6. Summary of Inflation
Assumptions of this model:
Currency issuance is based on supply capacity.
Therefore:
• Demand and supply increases are synchronized
Inflation is strongly suppressed
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■ Important Recognition
Inflation is
• Determined not by underlying funds
• By supply and demand balance
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■ 7. Why Tax Increases Are Unnecessary
Traditional:
Funding = Taxes or Government Bonds
Proposal:
Funding = Currency Issuance (Supply-Linked)
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■ 8. Constraints
The constraints of this model are clear:
Supply capacity (Real Economy)
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Adjustments are necessary in the following cases:
• Supply shortage
• Resource constraints
• External shocks
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■ 9. Positioning of this Proposal
This proposal is:
Not a rejection of debt
A redesign of currency
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■ 10. Conclusion
This model enables:
• Breaking free from reliance on tax increases
• Maintaining the primary balance
• Strongly controlling inflation
All of these simultaneously become possible.
The funding problem is a problem of the currency issuance structure
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