The Federal Treasury’s central bank (RBA) account

John Hermann

The Official Public Account (OPA), which contains federal Treasury’s RBA credits, should not be confused with a bank transaction account. Although it might appear at first sight to be so, it should be born in mind that changes in it occur post facto, that is, after money has been paid to or received by the federal government. Those changes simply signify a change in the fiscal status of the government. It would only be a real transaction account if every member of the population was permitted to have a central bank depository facility. That is not the case at present, and for this reason it is incorrect to call the credits in Treasury’s account with the central bank a form of money.

More generally, anything which exists outside the economy cannot be a form of money, because money is the facilitator or catalyst that allows transactions to occur within the economy. One could also add that, as a simple philosophical principle, it is absurd to think that the creator and issuer of any form of money (which the federal government is) has any need to save or store that money.

The agreed forms of money used within our society are state fiat money or currency (comprising coins, banknotes and exchange settlement reserves) and commercial bank deposit money. All of these monetary entities may be used for paying federal taxes. The so-called cryptocurrency is not an accepted form of money, and cannot be used for the payment of federal taxes.

Lastly, the lower levels of government (state, regional, territorial, municipal) are different from the federal government because they are not monetary sovereigns, and they certainly need to save and store the money they receive as revenue.

The payment of tax obligations to the federal government removes purchasing power from the economy by reducing the money supply. That money is not stored anywhere, however the process is one mechanism for increasing the government’s “fiscal space”, meaning its capacity for spending new money into the economy without incurring undue inflationary pressure.

Changes in federal Treasury’s account with the central bank are not a measure of stored money, but rather, they are a record of the government’s fiscal operations and the net result is one measure of its available fiscal space. The associated accounting, in which everything is monetized (expressed in terms of currency), may be viewed as smoke-and-mirrors operations. This is because what we are dealing with is essentially an operational account, not a transaction account.