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Central bank Losses. An Economic and Accounting Perspective Using the Example of the Czech National Bank

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  • Martin Mandel
  • Vladimír Zelenka
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    Abstract

    The first question that we ask ourselves in our article is whether the accounting of the central bank is supposed to respect the principles of internationally accepted standards (especially the International Financial Reporting Standards). We are looking for the basic differences in understanding of terms such as (il)liquidity and (in)solvency on the level of central and commercial banking. We analyze the economic reasons for origination of the long foreign exchange position of the ČNB which, under the circumstances of trend appreciation of the exchange rate of the Czech crown, is leading to a cumulative loss. We are discussing whether the current level of foreign exchange reserves of the ČNB is excessive or adequate. Special attention is paid to the monetary and financial impact of the loss of the central bank. We are pointing out that losing the central bank means profit for market subjects at the same time. It is not just a "fictitious" accounting problem and it can have its factual impact on the national economy. At the end we are summarizing and assessing the individual opinions regarding the loss of the ČNB.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Politická ekonomie.

    Volume (Year): 2009 (2009)
    Issue (Month): 6 ()
    Pages: 723-739

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    Handle: RePEc:prg:jnlpol:v:2009:y:2009:i:6:id:706:p:723-739

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    Related research

    Keywords: monetary policy; foreign exchange reserves; financial statements; central banking;

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    References

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    1. Åke Lönnberg & Peter Stella, 2008. "Issues in Central Bank Finance and Independence," IMF Working Papers 08/37, International Monetary Fund.
    2. Egert, Balazs & Komarek, Lubos, 2006. "Foreign exchange interventions and interest rate policy in the Czech Republic: Hand in glove?," Economic Systems, Elsevier, vol. 30(2), pages 121-140, June.
    3. Peter Stella & Åke Lonnberg, 2008. "Issues in central bank finance and independence," Working Paper 2008-13, Federal Reserve Bank of Atlanta.
    4. Peter Stella, 2002. "Central Bank Financial Strength, Transparency, and Policy Credibility," IMF Working Papers 02/137, International Monetary Fund.
    5. repec:imf:imfpdp:9314 is not listed on IDEAS
    6. Kenneth Sullivan, 2005. "Transparency in Central Bank Financial Statement Disclosures," IMF Working Papers 05/80, International Monetary Fund.
    7. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 97/83, International Monetary Fund.
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    Cited by:
    1. Jaroslava Durčáková, 2011. "Foreign Exchange Rate Regimes and Foreign. Exchange Markets in Transitive Economies," Prague Economic Papers, University of Economics, Prague, vol. 2011(4), pages 309-328.

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