Central Bank Credit to the Government: What Can We Learn From International Practices?
IMF Working Papers, January 1, 2012
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- Central Bank Credit to the Government: What Can We Learn From International Practices?
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Bibliographic details
- Authors: Marcela Matamoros-Indorf, Mrinalini Sharma, Simon Townsend, Luis Ignacio Jácome
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463931216.001
Summary and key findings
- Using a central bank legislation database, this paper documents and analyzes worldwide institutional arrangements for central bank lending to the government and identifies international practices.
- Key findings are:
- (i) in most advanced countries, central banks do not finance government expenditure;
- (ii) in a large number of emerging and developing countries, short-term financing is allowed in order to smooth out tax revenue fluctuations;
- (iii) in most countries, the terms and conditions of these loans are typically established by law, such that the amount is capped at a small proportion of annual government revenues, loans are priced at market interest rates, and their maturity falls within the same fiscal year; and
- (iv) in the vast majority of countries, financing other areas of the state, such as provincial governments and public enterprises, is not allowed.
- The paper does not address central banks' financial support during financial crises.
Policy implications and institutional practices identified
- Legal constraints are central: terms and conditions of central bank lending to the government are typically established by law.
- Common legal provisions include:
- caps on amounts tied to a small proportion of annual government revenues;
- requirement that loans be priced at market interest rates;
- requirement that loan maturity falls within the same fiscal year.
- Practices differ by country group:
- Most advanced countries: prohibition on central bank financing of government expenditure.
- Many emerging and developing countries: allowance for short-term financing to smooth tax revenue fluctuations.
- Restrictions commonly extend to other state entities: financing provincial governments and public enterprises is disallowed in the vast majority of countries.
Scope, data, and limitations
- Data source: a central bank legislation database.
- The paper documents worldwide institutional arrangements and identifies international practices.
- Publication details:
- Authors: Marcela Matamoros-Indorf, Mrinalini Sharma, Simon Townsend, Luis Ignacio Jácome
- January 1, 2012
- Pages: 44
- Volume: 2012
- Issue: 016
- Series: Working Paper No. 2012/016
- DOI: https://doi.org/10.5089/9781463931216.001
- Stock No: WPIEA2012016
- ISBN: 9781463931216
- ISSN: 1018-5941
- Subject tags: Bank credit, Banking, Central bank credit, Central bank legislation, Central banks, Exchange rate arrangements, Financial institutions, Foreign exchange, Loans, Money
- Keywords: Africa, Asia and Pacific, Bank credit, central bank, Central bank credit, central bank financing, Central bank legislation, central bank lending, country, Europe, exchange rate, Exchange rate arrangements, government, government index, international practices, lending to the government, Loans, Middle East and Central Asia, Western Hemisphere, WP
- Limitation explicitly stated: The paper does not address central banks' financial support during financial crises.
IMF Working Papers. Central Bank Credit to the Government: What Can We Learn From International Practices? By Marcela Matamoros-Indorf, Mrinalini Sharma, Simon Townsend, Luis Ignacio Jácome. January 1, 2012.