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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SUERF Policy Brief #168

This paper is based on the World Gold Council’s publication “Monetary Gold and Central Bank Capital” and focuses on the way that monetary gold holdings can mitigate the risks arising from the balance sheet anomalies, particularly during times of stress.

SUERF is a network association of central bankers and regulators, academics, and practitioners in the financial sector. This paper is authored by Kenneth Sullivan, principal of Central Bank Consulting. Previously he was Senior Financial Sector Expert with the International Monetary Fund (IMF). He spent seven years at the Reserve Bank of New Zealand as Chief Manager of both Accounting and Corporate Services.