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.
October 25th, 2012 at 2:56 pm
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
October 25th, 2012 at 6:19 pm
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:
October 28th, 2012 at 2:50 am
it’s a political decision. negative equity does not alter available actual CB operational options
Reply
October 26th, 2012 at 2:57 am
The ECB seems to need a 1B Euro tower..
Reply
October 28th, 2012 at 7:28 pm
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