Can Central Banks Go Broke?
Central banks can go broke and have done so, although mainly in developing countries. The conventional balance sheet of the central bank is uninformative about the financial resources it has at its disposal and about its ability to act as an effective lender of last resort and market marker of last resort. As long as central banks don’t have significant foreign exchange-denominated liabilities or index-linked liabilities, it will always be possible for the central bank to ensure its solvency though monetary issuance (seigniorage). However, the scale of the recourse to seigniorage required to safeguard central bank solvency may undermine price stability. In addition, there are limits to the amount of real resources the central bank can appropriate by increasing the issuance of nominal base money. For both these reasons, it may be desirable for the Treasury to recapitalise the central bank should the central bank suffer a major capital loss as a result of its lender of last resort and market maker of last resort activities. The fiscal authorities of the Euro Area should as a matter of urgency agree on a formula for dividing the fiscal burden of recapitalising the European Central Bank/Eurosystem, should the need arise.
|Date of creation:||May 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- Willem H. Buiter, 2007.
LSE Research Online Documents on Economics
3322, London School of Economics and Political Science, LSE Library.
- Buiter, Willem H., 2007. "Seigniorage," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1, pages 1-49.
- Willem Buiter, 2007. "Seigniorage," CEP Discussion Papers dp0786, Centre for Economic Performance, LSE.
- Buiter, Willem H., 2007. "Seigniorage," CEPR Discussion Papers 6152, C.E.P.R. Discussion Papers.
- Willem H. Buiter, 2007. "Seigniorage," NBER Working Papers 12919, National Bureau of Economic Research, Inc.
- Buiter, Willem H., 2007. "Seigniorage," Economics Discussion Papers 2007-8, Kiel Institute for the World Economy.
- Willem H. Buiter, 2007. "Seigniorage," LSE Research Online Documents on Economics 19733, London School of Economics and Political Science, LSE Library.
- Charles Goodhart, 1999. "Recent Developments in Central Banking: Some Special Features of the Monetary Policy Committee and of the European System of Central Banks," FMG Special Papers sp118, Financial Markets Group.
- Padoa-Schioppa, Tommaso, 1999. "EMU and Banking Supervision," International Finance, Wiley Blackwell, vol. 2(2), pages 295-308, July.
- Willem H. Buiter, 2005. "New Developments in Monetary Economics: Two ghosts, Two Eccentricities, a Fallacy, a Mirage and a Mythos," Economic Journal, Royal Economic Society, vol. 115(502), pages C1-C31, 03.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:6827. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.