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Central Bank Losses and Experiences in Selected Countries

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  • Ms. Claudia H Dziobek
  • Mr. John W. Dalton

Abstract

Under normal circumstances, a central bank should be able to operate at a profit with a core level of earnings derived from seigniorage. Losses have, however, arisen in several central banks from a range of activities including monetary operations under extreme conditions and financial sector restructuring. The paper discusses the impact of losses on central bank operations and lays out the principles and practices for handling central bank losses. It is suggested that losses should be disclosed as a reduction of the central bank's net worth unless covered by the government. Governments may cover losses through recapitalization of the central bank, and this will create a new central bank asset, usually in the form of government securities held by the central bank. Six case studies illustrate the circumstances under which losses may arise, their coverage, and central banks' disclosure practices.

Suggested Citation

  • Ms. Claudia H Dziobek & Mr. John W. Dalton, 2005. "Central Bank Losses and Experiences in Selected Countries," IMF Working Papers 2005/072, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/072
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    References listed on IDEAS

    as
    1. Mr. Alfredo Mario Leone, 1993. "Institutional and Operational Aspects of Central Bank Losses," IMF Policy Discussion Papers 1993/014, International Monetary Fund.
    2. Mr. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 1997/083, International Monetary Fund.
    3. Mr. Charles Enoch, 1998. "Transparency in Central Bank Operations in the Foreign Exchange Market," IMF Policy Discussion Papers 1998/002, International Monetary Fund.
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