How much capital do central banks really have?

Twenty or more of the world’s most significant central banks have seen their equity position (or capital and reserves) go negative in the last few years. This novel situation does not fundamentally challenge the ability of these institutions to deliver on their mandate, but it does raise some interesting policy and communications issues. Central banks are incurring losses for two main reasons. The first is the impact of rising interest rates on their maturity mismatched portfolios. The second is losses on foreign exchange reserves accumulated in the attempt to avoid currency overvaluation. Comparing the experience of different central banks is not, however, straightforward. The lack of uniformity in their accounting practice makes it difficult to make comparisons. Indeed, if put on a common marked-to-market basis, Honohan finds that some central banks that report positive net equity are really under water, while (in sharp contrast) others report a negative equity figure that neglects sizable unrealized capital gains.