Treasury sends the Bank of England credit in bookkeeping shock

In my continuing efforts to try to get the Treasury to admit it creates money, I think I am gradually chipping away at the terminology designed to obfuscate the actual position.

In their latest letter (click to enlarge):

it admits that the Treasury instructs the Bank of England to create a credit. It demurely seems to suggest this is just one, which it ‘sends’ (how quaint) but of course it shows it is the same procedure for every credit and so it is actually credit in general. Further, this credit happens first, so it doesn’t rely on funds coming from somewhere else but just the will of, and proper authorisation by, Parliament.

Note too that:

The Treasury can then send a payment instruction to the Bank of England to debit the CF or NLF in line with the credit granted by the NAO.

So it doesn’t have to but ‘can’.

And Parliament gives the Treasury the power to create credit and thus, the letter admits, ever so discretely, government creates money as it spends.

Just like ordinary banks, the Bank of England administers credit creation, although it doesn’t do so by deciding whether its should issue a loan and whether or not it is going to get repaid, but as a wholly owned subsidiary of government, it creates credit on government orders.

Whilst noting that the National Loans Fund (NLF) comprises the bonds loaned to the government, which may be your and my premium bonds or bonds held by banks and insurance companies or foreigners and of course, increasingly importantly, bonds held by the Bank of England or its subsidiaries, the Consolidated Fund (CF) is simply the rest. (See also this thread here). I therefore suggest that the idea that, with regard to:

the Exchequer and Audit Departments Act 1866, this section [13] is not related to creating money: it is actually the approval of an amount requested by the Treasury to be paid from the Consolidated Fund (CF) or the National Loans Fund (NLF).

is being rather economical with the truth. It is saying that the Comptroller and Auditor General has to check that the Treasury is not overstepping Parliamentary authorisation, all the while ignoring that that Parliamentary authorisation tells the Bank of England to create ‘credit’ for the Treasury thus creating ‘debt’ for the Bank of England. As both Treasury and the Bank of England are owned by the government, it is bookkeeping.

They have delicately admitted that government ‘debt’ is created by government ‘credit’ instructions to the Bank of England.

They would, I think, prefer that we thought that government debt was in fact all actually borrowed and incurring interest for ‘our grandchildren to pay’. But as, (apart from my small recent Premium Bond contribution) virtually all new government debt is, through quantitative easing, now owed to the Bank of England and thus in due course to the government itself, so this too is simply bookkeeping.

Oh, what a tangled web we weave….