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Capitalizing Central Banks: A Net Worth Approach

  • Alain Ize

    (International Monetary Fund)

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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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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  1. J.Ramon Martinez-Resano, 2004. "Central bank Financial Independence," Macroeconomics 0403011, EconWPA.
  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.
  3. Robert P. Flood & Nancy P. 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, 2006. "Large Hoardings of International Reserves: Are They Worth It?," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus Sc (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 6, pages 171-206 Central Bank of Chile.
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