Data Spotlight: Ballooning Balance Sheets: Major central banks have been injecting liquidity to contain the effects of the global financial crisis

By combating malaria with mosquito nets or building schools and providing basic sanitation, philanthropy is helping transform the developing world. Rich donors are devoting fortunes—many of them earned through computer software, entertainment, and venture capitalism— to defeating poverty and improving lives, supplementing and in some cases surpassing official aid channels.From billionaires Bill and Melinda Gates and Warren Buffett to Aliko Dangote and George Soros, the titans of capitalism are backing good causes with their cash. Whether financing new vaccines, building libraries, or buying up Amazon rain forest to protect the environment, philanthropists are supporting innovations and new approaches that are changing lives and building dreams.This issue of F&D looks at the world of targeted giving and social entrepreneurship.“ Philanthropy’s role is to get things started,” says Microsoft co-founder Bill Gates, who is the world’s most generous giver. “We used foundation funds to set up a system to make market forces work in favor of the poor.” He says that catalytic philanthropy can make a big difference. “Good ideas need evangelists. Forgotten communities need advocates.” Former U.S. President Bill Clinton tells us that networks of creative cooperation between government, business, and civil society can get things done better to solve the world’s most pressing problems.Also in this issue, Prakash Loungani profiles superstar economist Jeffrey Sachs, who helped campaign for debt relief for developing economies and championed the Millennium Development Goals. We look at how, instead of spending commodity price windfalls on physical investments, which are often sources of corruption, governments of poor countries are sometimes well advised to hand some of the income over to their citizens. We examine moves by major central banks to ease our way out of the crisis enveloping advanced economies in our Data Spotlight column, and we hear about how China’s growth inspires creativity in the West.

Abstract

By combating malaria with mosquito nets or building schools and providing basic sanitation, philanthropy is helping transform the developing world. Rich donors are devoting fortunes—many of them earned through computer software, entertainment, and venture capitalism— to defeating poverty and improving lives, supplementing and in some cases surpassing official aid channels.From billionaires Bill and Melinda Gates and Warren Buffett to Aliko Dangote and George Soros, the titans of capitalism are backing good causes with their cash. Whether financing new vaccines, building libraries, or buying up Amazon rain forest to protect the environment, philanthropists are supporting innovations and new approaches that are changing lives and building dreams.This issue of F&D looks at the world of targeted giving and social entrepreneurship.“ Philanthropy’s role is to get things started,” says Microsoft co-founder Bill Gates, who is the world’s most generous giver. “We used foundation funds to set up a system to make market forces work in favor of the poor.” He says that catalytic philanthropy can make a big difference. “Good ideas need evangelists. Forgotten communities need advocates.” Former U.S. President Bill Clinton tells us that networks of creative cooperation between government, business, and civil society can get things done better to solve the world’s most pressing problems.Also in this issue, Prakash Loungani profiles superstar economist Jeffrey Sachs, who helped campaign for debt relief for developing economies and championed the Millennium Development Goals. We look at how, instead of spending commodity price windfalls on physical investments, which are often sources of corruption, governments of poor countries are sometimes well advised to hand some of the income over to their citizens. We examine moves by major central banks to ease our way out of the crisis enveloping advanced economies in our Data Spotlight column, and we hear about how China’s growth inspires creativity in the West.

Since the onset of the financial crisis in 2007, there has been a dramatic expansion in the size of the balance sheets of the Bank of England (BOE), the European Central Bank (ECB), and the U.S. Federal Reserve (Fed). Central banks found themselves in a policy quandary. They had difficulty further lowering their policy interest rates to ward off the recession because the rates were already quite low. As a result, these central banks undertook unconventional policies aimed at stabilizing financial markets and fighting the recession by boosting total demand.

uA16fig02

Central banks’ total assets have surged during the global financial crisis.

(total assets, end-of-month values, national currency)

Citation: Finance & Development 0049, 004; 10.5089/9781475576122.022.A016

Note: The Eurosystem comprises the ECB and euro area national central banks.
uA16fig03

The BOE purchased government securities.

(end-of-month values, billion pounds)

Citation: Finance & Development 0049, 004; 10.5089/9781475576122.022.A016

Although each of the central banks had a different approach, all three acted aggressively to inject liquidity into their economies and promote growth. The BOE engaged in a targeted quantitative easing policy that focused mostly on the purchase of government securities. Since March 2009, the BOE’s purchases of government securities (called gilts) have totaled 14 percent of GDP. The ECB has conducted a range of measures, including long-term financing operations and a limited securities market program for sovereigns. The Fed’s quantitative easing used purchases of both government bonds and mortgage-backed securities to reduce long-term yields, especially on residential mortgage rates.

Despite their somewhat different focus, a common result has been a rapid ballooning of all three central banks’ balance sheets. Since the onset of the subprime mortgage crisis in August 2007, the BOE’s balance sheet has grown 380 percent; the Eurosystem’s has mushroomed by 241 percent; and the Fed’s has grown 221 percent.

uA16fig04

The Eurosystem provided more credit to banks.

(end-of-month values, billion euros)

Citation: Finance & Development 0049, 004; 10.5089/9781475576122.022.A016

uA16fig05

The Fed bought government bonds and mortgage-backed securities.

(end-of-month values, billion dollars)

Citation: Finance & Development 0049, 004; 10.5089/9781475576122.022.A016

About the database

The data are derived from the International Financial Statistics database, which contains current statistics for 194 countries covering all aspects of international and domestic finance. The database is available at http://elibrary-data.imf.org

Prepared by Ricardo Davico and Brian John Goldsmith of the IMF’s Statistics Department.

Finance & Development, December 2012
Author: International Monetary Fund
  • View in gallery
  • View in gallery

    Central banks’ total assets have surged during the global financial crisis.

    (total assets, end-of-month values, national currency)

  • View in gallery

    The BOE purchased government securities.

    (end-of-month values, billion pounds)

  • View in gallery

    The Eurosystem provided more credit to banks.

    (end-of-month values, billion euros)

  • View in gallery

    The Fed bought government bonds and mortgage-backed securities.

    (end-of-month values, billion dollars)