Last updated: December 2007
Volume 54, Number 3
IMF Staff Papers

Spending Seigniorage: Do Central Banks Have a Governance Problem?

Alain Ize

Full Text of this Article (PDF 212K)

Abstract: This paper reviews how central banks allocate seigniorage, based on systematic cross-country comparisons of their financial accounts. Central banks are classified as weak or strong, depending on their structural profitability. Weak central banks typically (although not exclusively)operate in smaller and less wealthy countries, lack independence from their governments, and are burdened by large nonperforming assets, compulsory transfers, and low capital. Notwithstanding their weak finances, these central banks tend to overspend with regard to their operating expenditures. Governance also appears to be a potential concern in many strong central banks, however, with operating expenditures often adjusting upward for high profitability and capital accumulation and downward for low profitability. Main policy implications are briefly reviewed. [JEL E58, G21, H11]