The predicament of bloated central bank balance sheets
Swollen balance sheets carry significant risks for combating inflation, ensuring financial stability and preserving central bank credibility, independence and effectiveness. How can central banks reduce them?
The balance sheets of central banks in the main industrial countries have reached sizes unprecedented in peace time. In Japan and Switzerland, central bank balance sheets exceeded 100% of GDP at the end of 2022. Balance sheets of central banks have historically varied in size – on the liabilities side, reflecting the demand for banknotes; and on the assets side reflecting mainly the extent of foreign currency reserves held at the central bank. The central banks of oil-exporting countries tend
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