Are central banks going bankrupt?
The bond market has had a lousy year. And no one holds more bonds than central banks, which have amassed a fixed income portfolio worth well north of $30tn over the past decade. But do their mounting losses actually matter?
Yes and no. Central banks are obviously pretty unique institutions. On one hand they have a balance sheet and a P&L like anyone else, and right now they’re not looking great.
Toby Nangle estimates the Bank of England’s losses alone are currently around £200bn, and the Federal Reserve says it had notched up $330bn of unrealised losses by the end of the first quarter. We think it’s safe to say the pain has grown since then.
On the other hand, central banks are constructs of sovereign states and can literally create money out of thin air, which makes the whole bankruptcy question take on a different dimension.
This story originally appeared on: Financial Times - Author:Robin Wigglesworth
