Economics, Econometrics and Finance
4 years ago

Central bank insolvency risks infinite price levels without fiscal support.

National Bureau of Economic Research
Different Types of Central Bank Insolvency and the Central Role of Seignorage
Ricardo Reis

Paper Summary

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Central banks can avoid insolvency by receiving financial support from the government. There are different types of insolvency, including intertemporal, rule, and period insolvency. To determine if a central bank is intertemporally solvent, the present value of seignorage must be calculated. If a central bank has a dividend rule that pays out net income, it can never become insolvent on its own.