Central bank Losses. An Economic and Accounting Perspective Using the Example of the Czech National Bank

The first question that we ask ourselves in our article is whether the accounting of the central bank is supposed to respect the principles of internationally accepted standards (especially the International Financial Reporting Standards). We are looking for the basic differences in understanding of terms such as (il)liquidity and (in)solvency on the level of central and commercial banking. We analyze the economic reasons for origination of the long foreign exchange position of the ČNB which, under the circumstances of trend appreciation of the exchange rate of the Czech crown, is leading to a cumulative loss. We are discussing whether the current level of foreign exchange reserves of the ČNB is excessive or adequate. Special attention is paid to the monetary and financial impact of the loss of the central bank. We are pointing out that losing the central bank means profit for market subjects at the same time. It is not just a "fictitious" accounting problem and it can have its factual impact on the national economy. At the end we are summarizing and assessing the individual opinions regarding the loss of the ČNB.

Keywords: monetary policy, foreign exchange reserves, central banking, financial statements