Seigniorage and central banks’ financial results in times of unconventional monetary policy

Zbigniew Polański and Mikołaj Szadkowski

No 331, NBP Working Papers from Narodowy Bank Polski

Abstract: In this paper, we estimate seigniorage and compare it with central banks’ financial results and the size of transfers to the government, adopting the view of seigniorage as the monetary authority’s net income from cash (currency) issuance. Based on the accounting data from the 2003-18 period, the paper analyzes seven monetary authorities: four of the larger economies (Bank of England, Bank of Japan, Eurosystem, Federal Reserve System), and three of the smaller ones (Narodowy Bank Polski, Swedish Riksbank, Swiss National Bank). With the exception of the Polish central bank, following the Global Financial Crisis and the euro area sovereign debt crisis, all of them have adopted unconventional monetary policy measures extensively. Since 2008 we have observed growing divergences between estimates of seigniorage (being typically well below 0.5 per cent of GDP) and financial results (reaching in some cases and years well above 0.5 per cent of GDP), and implied transfers to governments, the latter subject also to different rules of central banks’ profit distribution. We attribute these differences primarily to unconventional activities of central banks in the case of larger economies, and to strong volatility of exchange rates in the case of smaller ones (the Riksbank being an intermediate case). We close our analysis by showing that cash and the resulting seigniorage can play the role of a buffer during the monetary policy normalization process.

Keywords: seigniorage; financial result; central bank finances; central bank profits; global financial crisis; great recession; euro area sovereign debt crisis; unconventional monetary policy; exit policies; normalization (search for similar items in EconPapers)
JEL-codes: E52 E58 E65 G01 N20 (search for similar items in EconPapers)
Pages: 86
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Note: We recognize the help of many people at diff erent stages of our research on central bank seigniorage and fi nancial result as its start dates back to the late 2000s. In particular, we feel deeply indebted to W.A. Allen (National Institute of Economic and Social Research, formerly with the Bank of England) and E.W. Maruszewska (University of Economics in Katowice), and also to G. Bachurewicz (NBP), K. Ciupa (SGH Warsaw School of Economics), M. Handig (Oesterreichische Nationalbank), M. Hołda (NBP), G. Jałtuszyk (SGH Warsaw School of Economics), L. Krsnakova (Oesterreichische Nationalbank), J. Lindé (Swedish Riksbank), S. Owsiak (Cracow University of Economics), W. Przybylska-Kapuścińska (WSB University, Poznań), G. Rösl (Ostbayerische Technische Hochschule Regensburg), D. Skała (University of Szczecin), J. Wielgórska-Leszczyńska (SGH Warsaw School of Economics) and M. Zwolankowski (University of Szczecin). Earlier drafts of the paper were presented at the 31st Asian-Pacifi c Conference on International Accounting Issues (Warsaw, 15 October 2019), the 3rd International Conference on Economic Research 2019 (Alanya, 24 October 2019) as well as at the FinSem seminar at the University of Szczecin (Szczecin, 22 November 2019).
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