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Capitalizing Central Banks: A Net Worth Approach

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  • Alain Ize

    (International Monetary Fund)

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    Abstract

    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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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

    Volume (Year): 52 (2005)
    Issue (Month): 2 (September)
    Pages: 289-310

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    Handle: RePEc:pal:imfstp:v:52:y:2005:i:2:p:289-310

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    Cited by:
    1. Peter Stella & Åke Lonnberg, 2008. "Issues in central bank finance and independence," Working Paper, Federal Reserve Bank of Atlanta 2008-13, Federal Reserve Bank of Atlanta.
    2. Åke Lönnberg & Peter Stella, 2008. "Issues in Central Bank Finance and Independence," IMF Working Papers, International Monetary Fund 08/37, International Monetary Fund.
    3. Ljungwall, Christer & Xiong, Yi & Yutong, Zou, 2013. "Central bank financial strength and the cost of sterilization in China," China Economic Review, Elsevier, Elsevier, vol. 25(C), pages 105-116.
    4. Andrew Swiston & Florencia Frantischek & Przemek Gajdeczka & Alexander Herman, 2014. "Central Bank Financial Strength in Central America and the Dominican Republic," IMF Working Papers, International Monetary Fund 14/87, International Monetary Fund.
    5. Karel Brůna, 2010. "Central Bank´s Foreign Exchange Reserves Accumulation and Dynamics of Banking System Liquidity Absorption: The Case of the Czech Republic, Poland and Hungary," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2010(6), pages 723-746.
    6. Thomas F. Cargill, 2006. "Central bank capital, financial strength, and the Bank of Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue may19.
    7. Peter Stella & Ulrich H. Klueh, 2008. "Central Bank Financial Strength and Policy Performance," IMF Working Papers, International Monetary Fund 08/176, International Monetary Fund.
    8. Jorge E. Restrepo L. & Luis Salomó S. & Rodrigo O. Valdés P., 2009. "Macroeconomy, Monetary Policy and Central Bank Capitalization," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 12(1), pages 5-38, April.
    9. Atsushi Tanaka, 2013. "Central Bank Financial Strength and Credibility: A Simple Dynamic Optimization Model," Discussion Paper Series, School of Economics, Kwansei Gakuin University 102, School of Economics, Kwansei Gakuin University, revised Mar 2013.
    10. Ansgar Belke & Thorsten Polleit, 2010. "How much fiscal backing must the ECB have? The euro area is not (yet) the Philippines," Economie Internationale, CEPII research center, CEPII research center, issue 124.
    11. Bank for International Settlements, 2013. "Central bank finances," BIS Papers, Bank for International Settlements, Bank for International Settlements, number 71, 8.
    12. Ljungwall, Christer & Xiong, Yi & Zou, Yutong, 2009. "Central Bank Financial Strength And The Cost Of Sterilization In China," Working Paper Series, China Economic Research Center, Stockholm School of Economics 2009-8, China Economic Research Center, Stockholm School of Economics.

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