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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Does a central bank need equity?

Posted by WARREN MOSLER on October 25th, 2012

Just when you thought they were trying to get the yen lower…
;)

It’s still the blind leading the blind, globally.

Does a central bank need equity?

Views are split on how much importance to attach to a central bank’s losses, ie, equity impairments. BoJ Governor Shirakawa says some equity is necessary, but Gakushuin Professor Iwata maintains that the deterioration of the BoJ’s balance sheet is not a problem because a central bank, as the only supplier of high-powered money, can operate without equity. If focusing on a central bank’s “parent company” accounts, equity may not need to be over-emphasized. But considering the possibility of a decrease in the purchasing power of currency holders, it probably has some meaning.

5 Responses to “Does a central bank need equity?”

  1. Jesse Frederik Says:

    Funny thing. I’m reading about the ‘Amsterdamsche Wisselbank’. The first Dutch and European ‘central bank’. Throughout it’s existence it operated with negative equity (if you use modern bookkeeping), because loans were never payed and all equity was payed out to the city of Amsterdam.

    Reply

  2. Shaun Richards Says:

    Hi Warren

    As someone who follows the actions of the ECB my suggestion is that negative equity for a central bank matters a lot more if it is not backed by a single treasury. For example the ECB is currently backed by 17 of them and we know that some treasuries are empty. So should someone or more thsn one leave when the central bank has negative equity there are plenty of potential problems…..

    Reply

    WARREN MOSLER Reply:

    it’s a political decision. negative equity does not alter available actual CB operational options

    Reply

  3. Jacob Goense Says:

    The ECB seems to need a 1B Euro tower..

    Reply

  4. roger erickson Says:

    How many talking pinheads can dance on an angel?

    There’s already a spoof of this story, appropriately called “Watership Clown.” About a psychward prison ship, where the inmates seize control. based on http://en.wikipedia.org/wiki/Watership_Down and many previous analogies too

    Another spoof is called Central Planning Bank :)

    Reply

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