Friday, 4 September 2009

Can a Central Bank Go Broke?

Can a Central Bank Go Broke?

Centralized monetary authorities enjoy a privileged position in the current monetary system. People tend to view the economists and politicians at these institutions as demigods, individuals who if given enough resources will ensure that the economy continues an ever-advancing and smooth trajectory. However, unlike the Greek demigods of yore, today's central bankers are mere mortals who must work within the confines and constraints of the institution that they head.
While they present an aura of invincibility, the truth is that the effectiveness of their policies faces severe limits.


Central banks enjoy a revered position in discussions on monetary matters. At their disposal are a seemingly endless array of tools and weapons ready to correct any market "imbalance" that threatens economic stability. However, these institutions are only as useful as the assets they represent.