Central Bank Financial Strength, Transparency, and Policy Credibility

August 1, 2002

Preview Citation

Format: Chicago

Peter Stella. Central Bank Financial Strength, Transparency, and Policy Credibility, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A central bank is financially strong if it possesses resources sufficient to attain its fundamental policy objective(s). Once endowed with those resources, relations between government and central bank should be designed so that significant changes in central bank financial strength do not occur unless necessitated by changes in policy objectives. The level of strength required depends on the array of policy objectives (for example, the exchange rate regime) as well as the constraints and risks presented by the operational environment. Attaining credibility is facilitated if the public can easily determine the financial strength of the bank, yet for a variety of reasons this is often difficult. Transparency requires institutional arrangements that ensure the central bank generates profit in most states of the world, is subject to strict ex post independent audit, and transfers regularly all profits, after provisions, to the treasury.

Subject: Banking, Central bank legislation, Central banks, Financial statements, Fiscal accounting and reporting, Foreign exchange, Inflation, International reserves, Prices, Public financial management (PFM)

Keywords: Australia and New Zealand, Central bank legislation, Central bank loss, Central bank losses, Credibility, Financial statements, Foreign exchange, Inflation, International reserves, Monetary policy, Policy capability, Policy objective, Profit determination, Rate of inflation, Transparency, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/137
Stock No:

WPIEA1372002
ISBN:

9781451855920
ISSN:

1018-5941

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