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IMF Staff Papers Logo    Last updated: September 2005
Volume 52, Number 2
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.
[JEL E58, E63, H63, M40]