The Ghana International Trade and Finance Conference (GITFiC) has recommended that as inflation and interest rates rise, central banks must deal with the economic and financial consequences of their policies.
According to GITFiC, they should also deal with the problems concerning cost distribution and potential long-term sustainability. The GITFiC made the recommendation in its research paper titled: “Unravelling the Global Central Banks’ Losses”.
The research was conducted with support from the World Bank, Accra and the European Union and was attended by African Diplomatic Corps in Accra, five selected industry giants and five students, central bank, heads of commercial banks among others.
The case study focused on the Swiss Central Bank, Central Bank of the Czech Republic, European Central Bank, Federal Reserve of USA, the Central Bank of England, the Central bank of Zambia and the Central Bank of Ghana.
The GITFiC said per the research and analysis, there were trends in all the countries understudied, which were the Russia-Ukraine war, COVID-19 pandemic; central banks borrowing from their various governments; and central banks coming to aid their various governments.
The rest were that the central banks, through their various finance or Treasury ministries, taking austerity measures to remedy the effects of the global situation, among others, and that these and a few other factors and indices accounted for mass losses by the central banks globally, of which Ghana was not exempted.
Global Economic Shocks
It stated that global economic shocks such as the aftermath of the pandemic and the Russia-Ukraine war, which led to outrageous increases in energy prices, inflation, and exchange rates, led the Ghanaian government to opt for a domestic debt restructuring.
“The Bank of Ghana, in their mandate to ensure the stability of the financial sector, absorbed 50 per cent of the Domestic Debt Exchange Programme which led to the bank recording negatives on their balance sheets. Hence, the losses recorded are not indicative of management but rather a testament to the profound impact of worldwide challenges,” the research pointed out.
It stated that the loss incurred by the country’s central bank was not an isolated incident, but rather a reflection of a greater world economic situation, adding that central banks’ principal goal was to fulfil their policy responsibilities, which included ensuring price and financial stability.
“Central banks are not typically profit-oriented in the same way as commercial banks or businesses, hence, in their process of fulfilling their mandate, they can incur losses. The Bank of Ghana served as the loss absorber for the entire debt exchange programme, a key requirement that allowed the Government of Ghana to meet the threshold for the approval of the IMF programme. It is important to note that the current trend of most central banks’ recoded losses is not a new phenomenon to receive backlash from citizens.”
GITFiC
The study said the recorded loss in the books of the central Bank of Ghana did not mean it was in a state of insolvency, stating that “Ultimately, losses and negative equity do not directly affect the ability of central banks to operate effectively. In normal times and in crises, central banks should be judged exclusively on whether they fulfil their mandates or not,” it said.
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