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Capitalizing Central Banks: A Net Worth Approach

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Author Info
Alain Ize
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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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/15.

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Length: 25 pages
Date of creation: 02 Feb 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/15

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Keywords: Central banks ; Costa Rica ; Chile ; Mozambique ; Capital ; Reserves ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. J.Ramon Martinez-Resano, 2004. "Central bank Financial Independence," Macroeconomics 0403011, EconWPA. [Downloadable!]
  2. Aizenman, Joshua & Marion, Nancy, 2003. "The high demand for international reserves in the Far East: What is going on?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 370-400, September. [Downloadable!] (restricted)
    Other versions:
  3. Robert P. Flood & Nancy Peregrim Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
  4. G. A. Mackenzie & Peter Stella, 1996. "Quasi-Fiscal Operations of Public Financial Institutions," IMF Occasional Papers 142, International Monetary Fund.
  5. Pablo García & Claudio Soto, 2004. "Large Hoardings of International Reserves: Are They Worth It?," Working Papers Central Bank of Chile 299, Central Bank of Chile. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ljungwall, Christer & Xiong, Yi & Zou, Yutong, 2009. "Central Bank Financial Strength And The Cost Of Sterilization In China," Working Paper Series 2009-8, China Economic Research Center, Stockholm School of Economics. [Downloadable!]
  2. Jean-Francois Segalotto & Marco Arnone & Bernard Laurens, 2006. "The Measurement of Central Bank Autonomy: Survey of Models, Indicators, and Empirical Evidence," IMF Working Papers 06/227, International Monetary Fund. [Downloadable!]
  3. Luis Felipe Céspedes & Rodrigo Valdés, 2006. "Autonomía de Bancos Centrales: La Experiencia Chilena," Working Papers Central Bank of Chile 358, Central Bank of Chile. [Downloadable!]
  4. Martin Cincibuch & Tomas Holub & Jaromir Hurnik, 2008. "Central Bank Losses and Economic Convergence," Working Papers 2008/3, Czech National Bank, Research Department. [Downloadable!]
    Other versions:
  5. Miguel A. Kiguel & Alain Ize & Eduardo Levy Yeyati, 2005. "Managing Systemic Liquidity Risk in Financially Dollarized Economies," IMF Working Papers 05/188, International Monetary Fund. [Downloadable!]
  6. Alain Ize & Miguel Kiguel & Eduardo Levy Yeyati, 2005. "Managing Systemic Liquidity Risk in Financially Dollarized Economy," Business School Working Papers managsystrisk, Universidad Torcuato Di Tella. [Downloadable!]
  7. Marcel Peter & Geoffrey Heenan & Scott Roger, 2006. "Implementing Inflation Targeting: Institutional Arrangements, Target Design, and Communications," IMF Working Papers 06/278, International Monetary Fund. [Downloadable!]
  8. Ake Lonnberg & Peter Stella, 2008. "Issues in Central Bank Finance and Independence," IMF Working Papers 08/37, International Monetary Fund. [Downloadable!]
  9. Thomas F. Cargill, 2006. "Central bank capital, financial strength, and the Bank of Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue May 19. [Downloadable!]
  10. Alain Ize, 2006. "Spending Seigniorage: Do Central Banks Have a Governance Problem?," IMF Working Papers 06/58, International Monetary Fund. [Downloadable!]
  11. Ulrich H. Klueh & Peter Stella, 2008. "Central Bank Financial Strength and Policy Performance: An Econometric Evaluation," IMF Working Papers 08/176, International Monetary Fund. [Downloadable!]
  12. Nada Oulidi & Alain Ize, 2009. "Why Do Central Banks Go Weak?," IMF Working Papers 09/13, International Monetary Fund. [Downloadable!]
  13. Peter Stella & Åke Lonnberg, 2008. "Issues in central bank finance and independence," Working Paper 2008-13, Federal Reserve Bank of Atlanta. [Downloadable!]
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