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Central Bank Losses and Experiences in Selected Countries

Author

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  • Claudia H Dziobek
  • 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

  • Claudia H Dziobek & John W. Dalton, 2005. "Central Bank Losses and Experiences in Selected Countries," IMF Working Papers 05/72, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/72
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    References listed on IDEAS

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    1. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 97/83, International Monetary Fund.
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    Citations

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    Cited by:

    1. Michele Cavallo & Marco Del Negro & W. Scott Frame & Jamie Grasing & Benjamin A. Malin & Carlo Rosa, 2018. "Fiscal Implications of the Federal Reserve's Balance Sheet Normalization," Finance and Economics Discussion Series 2018-002, Board of Governors of the Federal Reserve System (U.S.).
    2. Schobert, Franziska, 2006. "Linking financial soundness and independence of central banks--Central and Eastern Europe, Turkey and CIS countries," Research in International Business and Finance, Elsevier, vol. 20(2), pages 239-255, June.
    3. Kenneth Sullivan & Marie-Therese Camilleri & Tonny Lybek, 2007. "Audit Committees in Central Banks," IMF Working Papers 07/73, International Monetary Fund.
    4. Robert E. Hall & Ricardo Reis, 2015. "Maintaining Central-Bank Financial Stability under New-Style Central Banking," NBER Working Papers 21173, National Bureau of Economic Research, Inc.
    5. Sònia Muñoz, 2007. "Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe; A Note," IMF Working Papers 07/98, International Monetary Fund.
    6. Bank for International Settlements, 2013. "Central bank finances," BIS Papers, Bank for International Settlements, number 71, November.
    7. Peter Stella & Ulrich H Klueh, 2008. "Central Bank Financial Strength and Policy Performance; An Econometric Evaluation," IMF Working Papers 08/176, International Monetary Fund.
    8. Luis Felipe Céspedes C. & Rodrigo Valdés P., 2006. "Central Bank Autonomy: The Chilean Experience," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 9(1), pages 25-47, April.
    9. repec:wsi:jicepx:v:04:y:2013:i:02:n:s1793993313500117 is not listed on IDEAS
    10. Osama Sweidan, 2010. "Central bank inability and Taylor rule in developing countries," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 57(4), pages 395-409, December.
    11. repec:bla:reviec:v:25:y:2017:i:5:p:990-998 is not listed on IDEAS
    12. repec:eee:jimfin:v:78:y:2017:i:c:p:21-43 is not listed on IDEAS
    13. repec:ebl:ecbull:v:5:y:2005:i:12:p:1-6 is not listed on IDEAS
    14. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69, November.
    15. Garreth Rule, 2011. "Issuing central bank securities," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 30.
    16. Mali Chivakul & Robert C York, 2006. "Implications of Quasi-Fiscal Activities in Ghana," IMF Working Papers 06/24, International Monetary Fund.
    17. Luis Felipe Céspedes & Rodrigo Valdés, 2006. "Autonomía de Bancos Centrales: La Experiencia Chilena," Working Papers Central Bank of Chile 358, Central Bank of Chile.
    18. Kamal, Mona, 2010. "الإطار النظرى للتنسيق بين السياستين المالية والنقدية
      [The Theoretical Framework for the Coordination of Fiscal and Monetary Polices]
      ," MPRA Paper 26856, University Library of Munich, Germany.
    19. Nada Oulidi & Alain Ize, 2009. "Why Do Central Banks Go Weak?," IMF Working Papers 09/13, International Monetary Fund.
    20. Emad Omar Elhendawy, 2015. "Sterilization and Inflation in the Long-Term Empirical Evidence from Egypt," Applied Economics and Finance, Redfame publishing, vol. 2(2), pages 68-78, May.
    21. Cavallo, Michele & Del Negro, Marco & Frame, W. Scott & Grasing, Jamie & Malin, Benjamin A. & Rosa, Carlo, 2018. "Fiscal implications of the Federal Reserve's balance sheet normalization," Staff Reports 833, Federal Reserve Bank of New York.

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