AUSTRALIS'S CENTRAL BANK
SAYS IT IS BUST
The central bank of
Australia on Wednesday made the astonishing admission that it is, basically,
bust. Its entire equity has been wiped out by pandemic-related bond buying.
Of course, the Reserve
Bank of Australia (RBA) is a central bank, and can print money. So it can work
its way out of a situation that would bankrupt a conventional bank or company.
It's an interesting
insight into the challenges other central bankers face as they attempt to reconcile
Covid stimulus with post-Covid inflation and economic emergence.
The RBA began its
bond-purchase program in November 2020 as a second stimulus package in response
to the pandemic. The first round of measures saw it slash rates to record lows,
and set up a term funding facility offering cheap three-year funding to banks.
For the bond buying, the central bank bought Australian government bonds and
semi-government securities in the secondary market to lower interest rates on
bonds maturing between five and 10 years out.
The program was
extended, and extended, and extended yet again. Ultimately, the RBA bought
A$281 billion (US$188 billion) in national, state and territory government
bonds.
Now the bill has come
due.
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