Dr. Dennis Nsafoah, an Assistant Professor of Economics at Niagara University in New York, argues that central banks should not be assessed solely on their accounting losses. While acknowledging the reality of such losses, he contends that evaluating a central bank purely on profitability is a mischaracterization of its core functions. Central banks are primarily tasked with controlling inflation, maintaining exchange rate stability, and preserving monetary credibility, not maximizing profits.
Understanding Central Bank Mandates
Unlike private corporations or commercial banks, the objectives of central banks are fundamentally different. Their success is measured by their ability to achieve broad macroeconomic stability rather than by a bottom line. This distinction is crucial when interpreting their financial performance.
Dr. Nsafoah highlights that central banks can incur accounting losses and even experience periods of negative equity while still effectively managing monetary policy and maintaining credibility. Many central banks globally have navigated such financial situations without compromising their policy objectives.
The Concept of Policy Solvency
The key metric, according to Dr. Nsafoah, should be ‘policy solvency.’ This refers to a central bank’s capacity to consistently and credibly implement monetary policy in a way that supports macroeconomic stability. Under this lens, accounting losses alone do not automatically signify a policy failure.
Policy solvency considers the central bank’s ability to sustain its operations and policy objectives over the long term, irrespective of short-term accounting fluctuations. It emphasizes the functional effectiveness of the institution in achieving its mandated goals.
Critique of the Bank of Ghana’s Solvency Calculation
While Dr. Nsafoah commends the Bank of Ghana for shifting the discourse towards policy solvency, he identifies significant issues with its specific calculation presented in its 2025 report. The Bank of Ghana reported an operating income of GH¢22.23 billion against an Open Market Operations (OMO) cost of GH¢16.73 billion, concluding a policy solvency of GH¢5.50 billion.
However, a closer examination reveals that a substantial portion of this reported operating income, specifically GH¢9.57 billion, originated from realized gains on the sale of refined gold. Dr. Nsafoah points out that this reliance on asset sales distorts the picture of recurring operational income.
The Impact of Reserve Asset Sales
From a policy solvency perspective, Dr. Nsafoah argues that gains from selling reserve assets should not be treated as recurring operational income. A central bank cannot sustainably finance its ongoing monetary policy operations through the repeated liquidation of its strategic reserves.
When these one-time gains from gold sales are excluded, the Bank of Ghana’s own figures present a different scenario. The adjusted recurring income, after subtracting the gold sale gains from the total operating income, amounts to GH¢12.66 billion. This figure, when compared to the OMO cost of GH¢16.73 billion, results in a revised policy solvency deficit of -GH¢4.07 billion.
Therefore, based on the Bank of Ghana’s own accounting framework, excluding non-recurring income sources, the institution would be considered policy insolvent. This analysis underscores the critical importance of distinguishing between sustainable operational income and temporary gains from asset liquidation when assessing a central bank’s financial health and policy capacity.
Future Implications and Watchpoints
The debate over central bank financial health highlights the need for clearer metrics that reflect their unique mandates. As central banks globally grapple with post-pandemic economic conditions, including inflation and evolving monetary policies, the focus will likely intensify on their operational resilience and long-term policy capacity. Investors, policymakers, and the public will need to look beyond simple accounting figures to understand the true strength and effectiveness of these vital institutions. The sustainability of monetary policy implementation, especially in light of potential future asset sales or market volatility, will be a key area to monitor.
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