| Description |
1 online resource (43 pages) |
| Contents |
I. Introduction; II. The Increasing Relevance of Central Bank Financial Strength and Independence; Figures; 1. Ratio of Net Foreign Assets to Central Bank Capital (106 Countries-1991, 2001, 2006); 2. Ratio of Net Foreign Assets to Central Bank Capital for 106 Countries; 3. Median Return on Average Assets in a Sample of 91 Central Banks; 4. U.S. Federal Reserve System; 5. Bank of Canada; III. Is Central Bank Financial Independence a Sensible Concept?; A. Technical Insolvency vs. Policy Insolvency; B. Policy Insolvency-Does the Central Bank Balance Sheet Alone Matter? |
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C.A Digression: Are Central Bank Finances of Macroeconomic Importance?Tables; 1. Central Bank Losses in a Group of Western Hemisphere Countries, 1987-2005; IV. Legal Provisions; A. Explicit Recognition of Responsibilities; B. Coping with Central Bank Losses or Capital Insufficiency; V. Do Treasuries Actually Stand Behind Central Banks?; VI. Can Central Bank Financial Independence Be Preserved?; 2. Hungary: Central Bank Balance Sheet as of December 31, 1995; 3. Layers of Central Bank Capitalization; 4. Results of the Review of Central Bank Legislation; Appendix |
| Summary |
Conventional economic policy models focus only on selected elements of the central bank balance sheet, in particular monetary liabilities and sometimes foreign reserves. The canonical model of an "independent" central bank assumes that it chooses money (or an interest rate), unconstrained by a need to generate seignorage for itself or government. While a long line of literature has emphasized the dangers of fiscal dominance influencing the conduct of monetary policy the idea that an independent central bank could be constrained in achieving its policy objectives by its own balance sheet situation is a relatively novel idea considered in this paper. If one accepts this potential constraint as a valid concern, the financial strength of the central bank as a stand alone entity becomes highly relevant for ascertaining monetary policy credibility. We consider several strands of evidence that clearly indicate fiscal backing for central banks cannot be assumed and hence financial independence is relevant to operational independence. First we examine 135 central bank laws to illustrate the variety of legal approaches adopted with respect to central bank financial independence. Second, we examine the same data set with regard to central bank recapitalization provisions to show that even in cases where the treasury is nominally responsible for maintaining the central bank financially strong, it may do so in purely a cosmetic fashion. Third, we show that, in actual practice, treasuries have frequently not provided central banks with genuine financial support on a timely basis leaving them excessively reliant on seignorage to finance their operations and/or forcing them to abandon policy objectives |
| Notes |
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL |
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digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL |
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Print version record |
| Subject |
Banks and banking, Central.
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Bank capital.
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Bank capital
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Banks and banking, Central
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| Form |
Electronic book
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| Author |
Lönnberg, Åke, author.
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International Monetary Fund. Monetary and Capital Markets Department.
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| ISBN |
1282392220 |
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9781282392229 |
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