Capitalizing Central Banks: A Net Worth Approach

Alain Ize

No 2005/015, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; balance sheet; rate of inflation; core capital; low income; risk premium (search for similar items in EconPapers)
Pages: 25
Date: 2005-01-01
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Citations: View citations in EconPapers (47)

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