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The centeral bank is not allowed to just print money and go buy their morning coffee with it. They have to buy bonds if they want to inject money into the economy.
When the bonds mature, they are repaid using currency. So the reserve bank looses an asset (the bond), and gets nothing in return (remember they can't go spend the currency that they just received in payement for the bond. The currency is just stored away, removed from the economy). In effect, outstanding currency means that the bank 'owes' somebody a bond, and they can come and claim that bond with their currency (obiously an oversimplification but you get the idea.)
Many years ago money was a liability to the bank because it was redeemable for gold. Now it is redeemable for bonds.
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∙ 12y ago
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