Seven central banks in Africa, Europe and the Americas face same circumstances of financial losses, according to research by Ghana International Trade and Finance Conference (GITFiC).
The banks are Swiss Central Bank, Central Bank of the Czech Republic, the European Central Bank, the Federal Reserve of the United States, Central Bank of England, the Central Bank of Zambia, and Ghana.
The research, spearheaded by Mr Selasi Koffi Ackom, Chief Executive Officer and Gerald Woode, Lead Research Fellow of GITfiC spanned from 2020 to 2022 titled: “Unravelling the Global Central Banks’ Losses.”
The study was to contribute to a better understanding of the intricate links between geopolitical events, health problems, and financial stability and to draw comparative insights into the variances in financial vulnerabilities and recovery tactics implemented by central banks in response to shared circumstances.
It was necessitated due to some public outcries by some section of citizens across the African continent and the world at large, which the research believed were the result of misinformation, a lack of information and proper sensitization and, to a large extent, political expediencies.
The survey said the global economy of Switzerland experienced a slowdown in their economy, which the central bank’s assets of CHF 1,057 billion in 2021 were reduced to CHF 881 billion.
The GDP growth rate of the Swiss economy was around 2.11 per cent in 2022, lower than the 3.9 per cent rate in 2021 and the central bank posted its biggest loss ever, reporting a loss of 132 billion Swiss Francs ($143 billion) in the 2022 financial year against the 26 francs billion profit it made in 2021.
These losses occurred in bond and stock portfolios due to a large market downturn.
The IMF recommendation to the country stated the authorities should implement agile, data-dependent measures to address near-term challenges and take action to tackle longer-term structural issues.
The research said according to Czech Central Bank’s 2022 annual report, the economy of the Republic was greatly affected by the Russia-Ukraine war and that the country experienced a shallow economic recession in the second half of 2022, mainly due to its energy crisis and market deterioration.
The national bank of the Czech Republic recorded 411.1 billion crown ($18.4 billion) loss on their balance sheets in 2022, according to Reuters and other research agencies and the main cause of the losses were increases in imported raw materials, especially fuel prices, production problems that affected exporters due to the COVID-19 pandemic.
The survey stated that the European Central Bank in 2022 faced a financial set back that stemmed from resurgence of inflation and elevated interest rates and this led to the bank taking specific actions in response to the changing economic landscape.
The bank took one significant step by writing down the value of certain bonds and the devaluation was strategic move to align the values of these bonds with the evolving market conditions, reflecting the shift in interest rates, according to research agencies.
The bank further allocated substantial amounts of euros to address balances that had accumulated over the course of a decade marked by monetary expansion.
The accumulation of balances was attributed to the practice of “money printing,” where central banks create new money to stimulate economic growth and manage various economic challenges.
The study stated that most of the losses were revealed to have come from write-downs in the European Central Bank’s relatively small owned funds and US dollar portfolio and from the interest it paid to the central banks of Eurozone member countries.
It said the world’s largest bond market, the US bond market recorded its worst market in 2022.
The research stated that in its bid to solve the constant rise in inflation, the US Federal Reserve hiked its policy rate by four per cent causing the US Treasury market to record losses, adding; “The bond market declined by 12.5 per cent in 2022, which is the worst in history.”
It said according to the Official Monetary and Financial Institutions Forum, the unusual losses of the reserve were mainly due to sharp rises in interest rates and just like the rest of the world, the USA was also greatly impact by COVID-19 and the Russia-Ukraine war.
The United Kingdom taxpayers also took their first-ever loss on their bond stockpile from the Bank of England in September 2022 with a loss of GBP156 million ($174 million) due to rising borrowing costs, according to Bloomberg and other research agencies.
The bank’s borrowing cost increased in September 2022, indicating that interest rates in the economy were rising.
The survey said the Zambia Kwacha faced a massive depreciation of about 49 per cent in 2020 and attributed it to a disruption in international trade and low economic growth due to the aftermath of the COVID-19 pandemic.
The Kwacha recovered strongly in 2021 after an allocation of 937.6 million SDR (Special Drawing Rights) by the International Monetary Fund in August 2021, according to the Bank of Zambia’s 2021 report.
“The IMF intervention resulted in a balance of payments surplus of US$1.5 billion (8.2 per cent of GDP) in 2021 compared to the deficit of $0.4 billion that was recorded in 2020,” it stated.
The research said similarly, the central bank of Ghana also recorded losses of GHS 60.81, which was in contrast with the GHS1.23 billion profit recorded in 2021 and that the financing of Ghana’s fiscal debt was the major contributor to the bank’s high expenses and overruns.
It said: “This started before the launch of the Domestic Debt Exchange Programme. Partly also attributed the loss to the COVID-19 pandemic and the Russia-Ukraine war, which resulted in persistent and broadening inflation pressures among others.”
The study recommended that as inflation and interest rates rise, central banks must deal with the economic and financial consequences of their policies, and problems concerning cost distribution and potential long-term sustainability.
