Economy Forward

This article is to present the actual profitability of the central bank (CB) in 2022 and 2023 against the colossal losses published by the CB. Loss scenario - Business accounting standards The CB has reported a loss of Rs. 374 bn for 2022 and Rs. 114 bn for 2023 (see table below). This is based on adoption of evolving business accounting standards recommended for large commercial-based financial institutions. Therefore, the adoption of same standards for the CB is inappropriate for the CB is a financial regulatory institution operating on monopoly money printing license of the government. For instance, huge book-keeping/unrealised losse of Rs. 737 bn in 2022 and Rs. 597 bn in 2023 has resulted annual losses for 2022 and 2023. A detailed article was released in this blog yesterday ( Read the article here ) to explain the inappropriateness of business accounting standards for central banks  and questionable accounting used for the CB. Profit scenario - Central bank accounting standards T

  Article's Background The central bank (CB) Governor at a special press meeting held on 7 May 2024 explained the technical background for central bank profit or loss. The relevant video clip circulated in the YouTube is attached here (Video play) . This article is intended to highlight the inaccuracy of explanations given by the Governor relating to CB's loss for the year 2023. Accordingly, it appears that he has no idea of financial reporting relevant to central bank monetary operations and policies. This article proves that the CB loss stated above is a result of improper monetary policy operations and inappropriate accounting adopted for measurement and reporting of CB monetary operations. Governor's explanations Central bank (CB) may make profit or loss when implementing its policies. CB reported a loss of Rs 19 bn in 2015, Rs. 374 bn in 2022 and Rs. 114 bn in 2023. He cited two factors attributable to the loss in 2023. The revaluation cost due to the increase in the e

  Article's Background According to CB's annual financial statements released on 25 April 2024, the loss of the CB for its independent monetary and financial operations in 2023 was Rs. 114.4 bn. In addition, the profit remittable to the government for the year was negative Rs. 313.7 bn. I never heard of a central bank estimating of negative dividends.  The CB escaped bankruptcy, thanks to interest income of Rs. 522.5 bn received on its huge investment portfolio of government securities, again thanks to CB's sky rocketed interest rate policy on government securities. Even a man on the road may wonder why the CB run by an esteemed class of international economists and experts by printing of money as they wish (central bank independence) makes such colossal losses and who are accountable to and who pay for such losses. Although CB financial statements are difficult to understand, they show many arbitrary operations hiding behind the independent monetary policy responsible for

  Article's Background World over, the monetary policy independence of central banks has now come under heavy attack. The major reason is their inability to assure the post-pandemic price stability despite the underlying monetary theory. Devastating effects of high interest rates policy adopted during the past two years on both real sector and financial sector have deterred the recovery of global supply chains and bottlenecks caused by the pandemic and subsequent geopolitical issues. As a result, livings standards are eroded while a new global waive of poverty has surfaced. The debt and foreign currency crisis confronted by the developing world has become the new conduit for the geopolitics and poverty. The fact of the matter is the inability of central banks to tame inflationary pressures despite sky rocketed interest rates. In this background, not only independence but also instrument suitability of monetary policy are now being questioned. While the suitability of policy interes