Do Central Banks Need Capital?

IMF Working Papers, July 1, 1997

Source details

Central banks may operate perfectly well without capital as conventionally defined.
A large negative net worth, however, is likely to compromise central bank independence and interfere with its ability to attain policy objectives.
If society values an independent central bank capable of effectively implementing monetary policy, recapitalization may become essential.
Proper accounting practice in determining central bank profit or loss and rules governing the transfer of the central bank’s operating result to the treasury are important.
A variety of country-specific central bank practices are reviewed to support the argument.

Recapitalization should be considered when a large negative net worth threatens central bank independence and the effective implementation of monetary policy.
Establish clear, appropriate accounting practices to determine central bank profit or loss.
Define transparent rules governing the transfer of the central bank’s operating result to the treasury to preserve policy credibility and operational independence.

The paper reviews a variety of country-specific central bank practices to support its argument.
Subject areas covered: Banking, Central bank accounting, Central banks, Commercial banks, Currencies, Financial institutions, Financial statements, Fiscal accounting and reporting, Money, Public financial management (PFM).
Keywords include: Baltics, Central bank accounting, central bank capital, central bank loss, central bank solvency, Commercial banks, Currencies, debt issuance, distribution rule, Financial statements, Fiscal accounting and reporting, interest income, market value, monetary policy, profit and loss account, profit distribution rule, profit payment, profit transfer, transfer policy, transfers profits, WP.

Do Central Banks Need Capital? - WP/97/83
- Do Central Banks Need Capital? - WP/97/83 (Markdown version)
- Do Central Banks Need Capital? - WP/97/83 (PDF)