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Sascha Buetzer

of the consequences for the ECB’s balance sheet or policy solvency more generally, a gap that this paper tries to fill. 3 The contribution of this paper to the literature is fivefold. It (i) adds a new monetary policy instrument to the discussion on whether – and how – monetary policy can take inequality concerns into account (Section 2), (ii) discusses the expected macroeconomic and distributional effects of OT, its calibration, and practical implementation, including central bank balance sheet accounting options (Section 3), (iii) presents policy solvency

Sascha Buetzer
This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank's loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a debt or money financed fiscal stimulus, which are particularly pronounced in a currency union without a central fiscal capacity. The paper concludes by discussing broader institutional, political, and legal considerations.
Sascha Buetzer

management. ABSTRACT : This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank’s loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a

International Monetary Fund. Monetary and Capital Markets Department

central bank is policy solvency, where realized revenues exceed realized costs in the long run . 4 Policy solvency allows the central bank to undertake its functions without recourse to the Treasury for funding. If realized net losses accrue (e.g., due to exceptional operations or market conditions) they should be covered by capital, thus preserving credibility and independence. Some central banks have successfully continued to operate with negative capital, but in these cases, these central banks had sound prospects of being policy solvent either at the time or within

International Monetary Fund. African Dept.

Sector Assessment V. Public Sector Arrears: Stocktaking and Liquidation Plan VI. Central Bank Policy Solvency Analysis, 2019–25 APPENDIX I. Letter of Intent Attachment I. Memorandum of Economic and Financial Policies Attachment II. Technical Memorandum of Understanding Attachment III. Central Bank of Liberia (CBL) Action Plan: Priority Items Attachment IV. Regularization of Central Bank Credit to Government, 2019 (Draft) Front Matter Page LIBERIA REQUEST FOR A FOUR-YEAR ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY

International Monetary Fund. Monetary and Capital Markets Department
This paper provides a review of the liquidity provision framework and recent developments in the United Kingdom. The Bank of England’s (BoE’s) Sterling Monetary Framework is the mechanism used in the United Kingdom to direct liquidity provision. The BoE’s relatively wide-ranging and accessible liquidity insurance framework raises three key questions and four other issues relevant to financial stability. The quantification of implications of the liquidity framework for the BoE balance sheet is still a work in progress. Safeguards are generally sufficient, although the BoE should ensure that lower level of supervisory scrutiny directed at small- and medium-sized enterprises does not adversely impact its horizon-scanning for firms at risk of requiring liquidity support.
International Monetary Fund. African Dept.
This paper highlights Liberia’s Request for a Four-Year Arrangement Under the Extended Credit Facility. The program aims to support the authorities’ strong adjustment efforts, catalyze significant donor financing, and provide a framework within which to implement the authorities’ ambitious reform agenda. The authorities have demonstrated commitment by passing a credible budget for FY2020 that consolidates public finances, including by rightsizing the compensation of employees and implementing long-overdue comprehensive civil service reform, while protecting funds for critical social spending. The program also aims to catalyze substantial external support, which is critical to ensure that the programmed adjustment can be contained at levels that are politically and economically feasible while, at the same time, ensuring public and external debt sustainability. Ensuring financial sector stability is an important element of the program. Improving data reporting, obtaining an overview of the health of the banking system, and taking decisive measures as needed will help identify and address financial sector vulnerabilities. At the same time, enhancing the legal framework is important to ensure that the Central Bank of Liberia has the required instruments should remediation be necessary.
International Monetary Fund. African Dept.

of sufficient income to cover the costs of its operations and its conduct of monetary policy . To this end, the outstanding stock of government debt on the CBL’s balance sheet (US$497 million as estimated at end-October 2019) will be restructured and consolidated into a long-term loan (Attachment IV of the Letter of Intent). Interest earned by the CBL on this loan will be set at 4 percent, a considerable increase from what was an effective interest rate of only 1 percent previously. Policy solvency (ability to operate without recourse to the government) for the CBL

International Monetary Fund. Monetary and Capital Markets Department

need for the BOU to receive recapitalization injections. The government’s agreement to meet half of the recommended UGX 1,600 (billion) recapitalization injections will reduce the cumulative deficit, but will not restore the BOU’s capital by the time they are completed in 2017. The BOU should consider a range of options to strengthen its balance sheet and capital framework and restore its policy solvency. 2 These include continuing BOU savings in operating expenses, raising levels of non-interest income, and raising interest from policy-related financial

International Monetary Fund. African Dept.

2019 reflects the government’s recognition of its existing debt. Despite an increase in the level, the proposed repayment plan allows for a manageable level of net repayments to the CBL—freeing resources for needed primary expenditure—while still ensuring policy solvency of the central bank. 18. Risks to the outlook are titled to the downside . On the upside, an increase in commodity prices, an increase in iron ore production, and an increase in donor grants could ease some of the macroeconomic pressures. Moreover, if the non-concessional borrowing planned in the