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Capitalizing Central Banks: A Net Worth Approach
Author:
Mr. Alain Ize
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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 015
Language:
English
Publication Date:
01 Jan 2005
DOI:
https://doi.org/10.5089/9781451860344.001
ISBN:
9781451860344
ISSN:
1018-5941
Pages:
25
Keywords:
WP; balance sheet; rate of inflation; core capital; low income; risk premium
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper provides a simple, quantitative, net worth-based, approach to assessing the need for central bank capital. It derives a concept of "core capital" (a function of the central bank's operating expenditures and the carrying cost of its international reserves) as the minimum capital needed by a central bank to ensure the credibility of its inflation target. The approach is illustrated with the published accounts of three loss-making central banks and selected accounting entries for a broader sample of central banks. Policy implications are explored. In particular, the paper argues that central bank capitalizations cannot be automatic and require instead a broad policy debate.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund