Can a Central Bank Go Bust?

Maxwell J Fry

The Manchester School of Economic & Social Studies, 1992, vol. 60, issue 0, 85-98

Abstract: Central banks publish profit figures that are invariably well below the amounts implied by calculations of their seigniorage revenue. Most of the difference is due to the impairment of central bank balance sheets by the acquisition of substandard assets and of liabilities not matched by assets of equal value. In the limit, a central bank can go bust when it has acquired liabilities of greater market value than the present value of its seigniorage revenue calculated for any steady-state inflation rate. An insolvent central bank can continue to service its liabilities only through accelerating inflation. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1992
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