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Capitalizing Central Banks; A Net Worth Approach

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  • 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.

Suggested Citation

  • Alain Ize, 2005. "Capitalizing Central Banks; A Net Worth Approach," IMF Working Papers 05/15, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/15
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    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. George A Mackenzie & Peter Stella, 1996. "Quasi-Fiscal Operations of Public Financial Institutions," IMF Occasional Papers 142, International Monetary Fund.
    5. J.Ramon Martinez-Resano, 2004. "Central bank Financial Independence," Macroeconomics 0403011, University Library of Munich, Germany.
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    More about this item

    Keywords

    Central bank capital; Central banks and their policies; Central banks; Chile; Costa Rica; International reserves; Monetary policy; Mozambique; Reserves; net worth; central bank; inflation; monetary fund; market debt;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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