Monetary gold and central bank capital

This paper looks at the vulnerabilities specific to central bank balance sheets and discusses how gold holdings can mitigate the risks posed. In particular, it focuses on the way gold holdings can affect the revaluation reserves that form part of central bank equity.

The paper is relevant to all central banks with an asset liability management focus and a related interest in maintaining their equity. It is particularly targeted at emerging market central banks that hold US dollars (USD) against their nation’s USD liability.

The report covers:

  • How central banks’ obligations require them to structure their balance sheets and this can lead to them carrying risks not found in commercial entities.
  • How material imbalances in central bank balance sheets can, in certain circumstances, affect a central bank’s operation and financial independence.
  • How common reserve management policies can, in some cases, lead to clear risks and vulnerabilities.
  • The role of gold in stabilising central bank equity

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