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Central Bank Losses

In: Central Banking in Developing Countries

Author

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  • Anand Chandavarkar

Abstract

The experience of several central banks in recent years proves that, unlike Eddington’s college, a central bank does not totter even if its accounts do not balance and generate losses. A central bank discharging traditional central banking functions in a steady and stable macroeconomic environment is normally expected to make profits because it is a monopoly supplying legal tender currency; an essential commodity, which, with an inelastic demand at least up to a minimum level, generates seigniorage. As privileged mono-polistic enterprises central banks should not incur losses under normal circumstances. In fact the very notion of central bank losses sounds an economic oxymoron which perhaps accounts, among others, for the virtual absence of even a theoretical analysis of such possibilities in standard presentations of central banking doctrine (for example Sayers, 1967; and de Kock, 1974) as well as in historical reviews of central banking theory and experience (Collins, 1993). The only exceptions to this omission are the earlier treatment of the subject in Kisch and Elkin (1932) and Plumptre (1947).

Suggested Citation

  • Anand Chandavarkar, 1996. "Central Bank Losses," Palgrave Macmillan Books, in: Central Banking in Developing Countries, chapter 11, pages 174-191, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37150-7_11
    DOI: 10.1057/9780230371507_11
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