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Capitalizing Central Banks: A Net Worth Approach Alain Ize Full Text of this Article (PDF 376K) 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. |
