IMF Working Papers

Central Bank Losses and Experiences in Selected Countries

Author/Editor:

Claudia H Dziobek ; John W. Dalton

Publication Date:

April 1, 2005

Electronic Access:

Free Full text (PDF file size is 360 KB).Use the free Adobe Acrobat Reader to view this PDF file

Summary:

Under normal circumstances, a central bank should be able to operate at a profit with a core level of earnings derived from seigniorage. Losses have, however, arisen in several central banks from a range of activities including monetary operations under extreme conditions and financial sector restructuring. The paper discusses the impact of losses on central bank operations and lays out the principles and practices for handling central bank losses. It is suggested that losses should be disclosed as a reduction of the central bank's net worth unless covered by the government. Governments may cover losses through recapitalization of the central bank, and this will create a new central bank asset, usually in the form of government securities held by the central bank. Six case studies illustrate the circumstances under which losses may arise, their coverage, and central banks' disclosure practices.

Series:

Working Paper No. 05/72

Subject:

Brazil Central banks Central banks and their policies Chile Czech Republic Hungary International financial markets Korea, Republic of Thailand