## Central Banks Use of Derivatives and Other Contingent Liabilities: Analytical Issues and Policy Implications

_IMF Working Papers, March 1, 2000_

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## Bibliographic details
- Authors: Miss Liliana B Schumacher, Mario I. Bléjer
- Published: March 1, 2000
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451848786.001

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### Summary
- Some central bank derivatives and other contingent liabilities arise from anomalous circumstances, but there are a number of positive reasons that explain their popularity.
- Most of these operations are off-balance sheet; as a result they:
  - increase the risk of central bank accounts, and
  - reduce the transparency of central bank accounts.
- Reduced transparency and higher off-balance-sheet risk make more difficult the assessment of:
  - the financial position of the monetary authority, and
  - by implication, the macroeconomic conditions of the country.
- To address these problems, the authors suggest a comprehensive portfolio approach that values, in an economic sense, all assets and liabilities of the central bank.

### Analytical findings
- Off-balance-sheet status of derivatives and contingent liabilities:
  - Increases risk in central bank accounts.
  - Reduces transparency of central bank accounts.
- Assessment implications:
  - Hinders accurate evaluation of the monetary authority’s financial position.
  - Complicates assessment of macroeconomic conditions.
- Rationale for central bank usage:
  - While some operations stem from anomalous events, multiple positive motivations explain the popularity of derivatives and contingent liabilities for central banks.

### Policy recommendations and approach
- Adopt a comprehensive portfolio approach that:
  - Values, in an economic sense, all assets and liabilities of the central bank.
  - Brings off-balance-sheet items into an economic valuation framework to improve transparency and risk assessment.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/central-banks-use-of-derivatives-and-other-contingent-liabilities-analytical-issues-and-3548_