Many central banks have incurred loses; BoG is not exception – Ofori-Atta

Finance Minister, Ken Ofori-Atta, has stated that many central banks incurred losses as a result of the impact of the COVID-19 pandemic and the Russian/Ukraine war on their respective economies.

Citing examples such as the Bank of Jamaica, and the central banks of Argentina, Brazil, Chile, the Philippines, Singapore, Turkey, and the UK, he also said historically, some central banks have operated with negative equity as a result of losses yet fully met their policy objectives, as long as they remain policy solvent.

In an article “Standing strong with the Central Bank”, Mr. Ofori-Atta pointed out that the pandemic and Russia-Ukraine war have reinforced and increased the number of central banks that have moved into negative equity and have thrown light into this  ‘new normal.’

“Thus, the Central Banks of Chile, Czech Republic, Israel and Mexico have experienced years of negative equity. The Reserve Bank of Australia fell into negative equity in 2022 due to valuation losses on its bond holdings, and the bank stressed that it will not affect its mandate or operational efficiency. And unheard of in the modern financial setup, the German central bank, that citadel of fiscal purity, recorded a loss in 2022”, he added.

Furthermore, he pointed out that the US Federal Reserve Bank in April 2022 also declared a negative equity position, on account of the rapid rise in rates that began in 2022, renewed interest expenses on commercial bank reserves deposits, and low income on its security holdings, including US Government securities.

“In fact, as indicated by the Brookings Institution, “the Fed’s cumulative losses came to more than $52 billion as at the end of April 2022, exceeding its paid-in capital and surplus, and in effect, leaving it in negative equity.”

(I cite these examples just to make the point that hitherto unheard of things have been happening in central banks around the world recently.)”, he stressed

Accordingly, Mr. Ofori-Atta said as the focus shifts from direct targets of money supply to interest rates as operational targets, the framework for analysing central bank balance sheets has shifted, enabling central banks to play more interventionist roles in the economy than before.