The Tax Research glossary seeks to explain the terms used on this blog that refer to more technical aspects of economics, accounting and tax. It recognises that understanding these terms is critical to understanding the economic issues that affect us all the time.

Like the rest of the Tax Research blog, this glossary is written by Richard Murphy unless there is a note to the contrary. It is normative approach and reflects post-Keynesian, heterodox economic opinion with a bias towards modern monetary theory. The fact that many items in that sentence are hyperlinked shows that they are explained in the glossary.

The copyright notices pertaining to the Tax Research blog apply to this glossary.

The glossary is designed to achieve three goals:

  • It seeks to provide a short, hopefully straightforward, definition of what a term might mean.
  • It then seeks, when appropriate, to explain what the term means within the context in which it is used. This is meant to elaborate the definition to add to understanding.
  • It then critiques the term, explaining, if appropriate, what the weaknesses inherent in the term or the situation it describes are. The aim here is to empower the reader to understand the issues behind the nonsense that most professions create around their activity to provide them with a mystique that they rarely deserve and which often hides what they are really up to.

The glossary is not complete. It will grow over time. If you think there are entries that need adding please let me know by emailing Please also feel free to suggest edits. The best way to do this is to copy an entry into Word and then send me a track-changed document indicating the changes that you suggest.

Because of the way in which it is coded this glossary automatically cross refers entries within itself and to the blog that it supports and within the glossary itself but if you think a link is missing please let me know.

Finally, if you like this glossary then you might like to buy me a coffee. It has required the support of a fair few to write it. You can do so here.

Glossary Entries

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |

Bank of England

The UK's central bank. Owned outright by the UK government via HM Treasury since 1946, the Bank has a number of roles:

  • It produces and issues English and Welsh bank notes (but not coins) and issues them into the economy.
  • In practice it also regulates the issue of sterling bank notes in Scotland, Northern Ireland and the Crown Dependencies by requiring that deposits be made to cover the sums issued as notes by commercial banks or local governments, meaning that these note issues are akin to franchise arrangements with the Bank of England.
  • It regulates the bank deposit and payment systems, all of which ultimately operate through the central bank reserve accounts that UK clearing banks are required to maintain with the Bank of England for this purpose.
  • It is the ultimate sole creator of sterling as a currency, albeit it permits other commercial banks that it regulates to participate in this process.
  • It regulates the UK's banks and some other economically significant financial institutions such building societies, credit unions, insurers and major investment firms.
  • Through its monetary policy committee it seeks to control inflation, for which purpose it sets the base rate at which it is willing to pay on the central bank reserve accounts  of commercial banks , which then influences other interest rates in financial markets;
  • Undertakes quantitative easing and quantitative tightening on behalf of HM Treasury, which indemnifies it for any profits and losses arising and must authorise all major decisions relating to these issues as a result. These activities are described as unconventional monetary policy.

The Bank of England is notionally independent of the government and HM Treasury, which owns it. For resulting issues arising see the separate entry on central bank independence.

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Bank of International Settlements

The Bank for International Settlements (BIS) is an international financial institution (IFI) based in Basel, Switzerland. It serves as a bank for central banks and is often referred to as the "central bank for central banks." The BIS was established in 1930 to promote monetary and financial stability.

The BIS has 63 member central banks from around the world, including the central banks of all the major economies. There is inherent bias towards developed countries in its activities as a result.

Each member central bank holds shares in the BIS and has the right to participate in its governance and decision-making processes.

In addition to providing research and support facilities to central banks and mechanism to assist cooperation between them the BIS also hosts the Basel Committee on Banking Supervision (BCBS). This develops international banking standards and guidelines, known as the Basel Accords, to promote the soundness and stability of the global banking system. The Basel III framework is the latest set of regulations introduced by the BCBS.

More recently the BIS has also hosted Financial Stability Board (FSB). This monitors and makes recommendations about the global financial system. The FSB promotes the implementation of international standards and policies to enhance financial stability and mitigate systemic risks.

The BIS is at the heart of the neoliberal project, promoting the importance of independent central banks.

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Base money

‘Base money' is sometimes called ‘central bank money'. It comprises the currency issued by central banks in the form of notes and coins and what are called the central bank reserve account balances or central bank reserve accounts (see separate entry). These balances are the sums owed by the central bank to the commercial banks that hold accounts with that central bank as a requirement of banking regulation.

The central bank reserve accounts serve two purposes.  Firstly, they provide the mechanism by which payments from commercial banks and their customers are made to and from the government. Secondly, they are the mechanism used by commercial banks to make settlement of the liabilities that they owe each other when fulfilling the obligations that their customers' request be settled with customers of another bank.

The central bank requires that the commercial banks hold funds in their central bank reserve accounts. As a result, these accounts are always liabilities of the central bank and assets of the commercial banks. Whilst the sum each bank might hold in its central bank reserve account will vary as inter-bank settlement takes place the quantum of funds in the overall central bank reserve accounts is always under government control and is determined by its decisions on the amount it spends (which creates new central bank reserve account balances), the amount it taxes (which removes money from these accounts), and the amount it issues in bonds (which also reduces the central bank reserve account balances since those buying bonds then have a different liability owing to them by the government). As such the overall central bank reserve account balances and so the quantity of base money is under central bank control.

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Base rate

The ‘base rate' of interest is set by the central bank of a jurisdiction.

The base rate is the interest rate that a central bank will pay on money deposited with it on the central bank reserve accounts that commercial banks maintain with it to facilitate the payment of inter-bank liabilities.

The significance of the base rate is that it influences the interest rates charged by the commercial banks of a jurisdiction to their customers when making loans in the currency issued by the central bank that sets that base rate.

The setting of a central bank base rate of interest for a jurisdiction is the key tool within what is called conventional monetary policy.

The central bank base rate of interest sets the base rate for interbank lending, which is then in turn used to establish the rate for other lending, on which the loan interest rate to be charged is often specified to be at a fixed percentage rate above the base rate set by the central bank.

The term base rate is only commonly used in the UK. Other central banks use different terms. For example, the European Central Bank sets two rates – its deposit facility rate (equivalent to base rate) and its marginal lending rate (used where banks can borrow with collateral).

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Bilateral information exchange

Exchange of information between the tax authorities of states can be done bilaterally or multilaterally. When done bilaterally, two main types of agreements are used. The first are Double Taxation Agreements (DTAs). The second are Tax Information Ex­change Agreements (TIEAs).

Bilateral Double Taxation Agreements and Tax Infor­mation Exchange Agreements are agreed between the two participating states: no other state is party to the agreement. In multilateral agreements more than two states are parties to the agreement. Bilateral agreements are relatively common; mul­tilateral agreements are rare, but growing in importance as a result of  recent OECD initiatives.

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Black holes

The supposed existence of black holes within government finances are one of the narratives used to justify austerity .

In the commonly used narrative a black hole in government finances is supposed to be the deficit that a government creates  that might result in a borrowing requirement that it is supposedly unable to finance, resulting in the imposition of a cost upon both the current population of taxpayers and, for reasons that are not clear, their grandchildren.

In the case of a country with its own central bank and currency and which only borrows in that currency there can be no such thing as a black hole because a country of this sort can always create the money that is required to settle its debts. To describe a country such as the United Kingdom as having a black hole in its finances is, therefore, wholly incorrect.

See also household analogy.

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