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Capitalizing Central Banks: A Net Worth Approach

Author

Listed:
  • Mr. 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

  • Mr. Alain Ize, 2005. "Capitalizing Central Banks: A Net Worth Approach," IMF Working Papers 2005/015, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/015
    as

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    References listed on IDEAS

    as
    1. Mr. Robert P Flood & Ms. Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 2002/062, International Monetary Fund.
    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. 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.
    4. Mr. George A Mackenzie & Mr. Peter Stella, 1996. "Quasi-Fiscal Operations of Public Financial Institutions," IMF Occasional Papers 1996/008, International Monetary Fund.
    5. Miss Liliana B Schumacher & Mr. Mario I. Bléjer, 1998. "Central Bank Vulnerability and the Credibility of Commitments: A Value-at-Risk Approach to Currency Crises," IMF Working Papers 1998/065, International Monetary Fund.
    6. J.Ramon Martinez-Resano, 2004. "Central bank Financial Independence," Macroeconomics 0403011, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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