Tuesday, November 28, 2023
HomeEconomyRBA shares wiped out by billions in bond losses

RBA shares wiped out by billions in bond losses

Wayne Cole

SYDNEY (Reuters) – The Reserve Bank of Australia said on Wednesday that its shares had been wiped out by losses on pandemic-era bond purchases, but its creation The ability of the currency means that it is not insolvent and will proceed as usual.

Reserve Bank of Australia (RBA) deputy governor Michele Bullock says the bank has taken mark-to-market valuation losses on its $1 bond holdings 22.9 Billion($22.02 billion) in 1907/22.

These bonds are based on the period from November 2020 to February 2022.

The loss exceeds the underlying gain of A$8.2 billion and leaves the central bank with an accounting loss of A$7 billion 30. It also devoured all of the RBA’s reserves, leaving it with a negative 22 net asset position of A$400 million.

Block pointed out that while this would put a normal business entity in bankruptcy, the RBA’s liability is guaranteed by the government.

“Furthermore, because it has the ability to create money, the bank can continue to meet its obligations when it comes due, so it is not insolvent,” Bullock said.

“Therefore, the negative equity position will not affect the ability of the Reserve Bank”

RBA intends to hold bonds to maturity, at which point a profit may be made to offset Valuation loss.

Bullock pointed to other central banks Banks around the world will face similar losses in their emergency stimulus packages, although many do mark their assets to the market like the RBA.

In July, the Swiss National Bank reported a first-half loss 35 of CHF 2 billion, the largest since the central bank in 1907 Best time since inception.

The RBA also faces ongoing financial losses on its bond holdings, estimated to be likely to range from A$35 billion to A$35 billion to 2033 when the last bond matures.

As such, the RBA is expected to retain any future profits to rebuild its capital position and therefore is not expected to pay any dividends, which has been funding the government for years, Bullock said.

This also means that the RBA does not need a government capital injection, as happened in 2020*) When the bank’s foreign reserves suffer a valuation loss Time.

Treasurer Jim Chalmers earlier said he agreed with the RBA and believes the bond-buying program has played a key role in helping the economy get through

Chalmers recently conducted an independent survey of the RBA’s policy framework, board structure and communications s.

($1=1.4954 AUD)



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