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Can a Central Bank Go Bust?

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  • Fry, Maxwell J

Abstract

Central banks publish profit figures that are invariably well below the amounts implied by calculations of their seigniorage revenue. Most of the difference is due to the impairment of central bank balance sheets by the acquisition of substandard assets and of liabilities not matched by assets of equal value. In the limit, a central bank can go bust when it has acquired liabilities of greater market value than the present value of its seigniorage revenue calculated for any steady-state inflation rate. An insolvent central bank can continue to service its liabilities only through accelerating inflation. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Fry, Maxwell J, 1992. "Can a Central Bank Go Bust?," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(0), pages 85-98, Supplemen.
    • Handle: RePEc:bla:manch2:v:60:y:1992:i:0:p:85-98
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    Cited by:

    1. Bagus, Philipp & Howden, David, 2014. "Central Bank Insolvency: Causes, Effects and Remedies," MPRA Paper 79605, University Library of Munich, Germany.
    2. Bagus, Philipp & Howden, David, 2014. "Fiscal Considerations of Central Bank Recapitalization," MPRA Paper 79606, University Library of Munich, Germany.
    3. Medhora, Rohinton, 1995. "The allocation of seigniorage in the Franc Zone: The BEAC and BCEAO regions compared," World Development, Elsevier, vol. 23(10), pages 1781-1793, October.

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