Why central bank balance sheets matter

Keynote address by Mr Jaime Caruana, General Manager of the BIS, at the Bank of Thailand-BIS conference on "Central bank balance sheets in Asia and the Pacific: the policy challenges ahead", Chiang Mai, Thailand, 12 December 2011.

Abstract

Central bank balance sheets have proved crucial in designing and pursuing policies in the wake of financial crises in recent years. Central banks have bought a wide range of financial assets in order to further major macroeconomic and financial stability objectives, which has implied a comparable increase in domestic liabilities. This has led to an unprecedented global expansion of central bank balance sheets. But balance sheets of the current size could create broad policy risks, beyond the increased exposure of the balance sheet to market developments. These risks include inflation, financial instability, distortions in financial markets, and conflicts with government debt managers. Analysing balance sheet-related risks can also help design suitable "exit strategies" from the current policies.