The Comparison of the Accounting Methods for the Monetary Base Between Central Banks

Saturday, June 25, 2016: 2:30 PM-4:00 PM
250 Dwinelle (Dwinelle Hall)
Nobuko Takahashi, Kokushikan University, Tokyo, Japan
Ryohei Yoshikawa, Kansaigakuin University, Kyoto, Japan
The purpose of this study is to compare the accounting methods for the monetary base of certain central banks. So far our research had focused on the accounting of the Bank of Japan (BoJ). We would like to widen our focus to include other central banks.

In the above-mentioned research that led us to the findings about BOJ, we would like to highlight  some of the similarities and the differences with other central banks. The framework of this research is as below:

The subjects of comparison are: ECB, FRB, BOE.

The matter for the consideration from the comparison:

            (1)            The accounting treatment regarding the monetary base;

            (2)            The evolvement of the balance sheet structure.

The findings from the BOJ research are as below:

BOJ was the pioneer to introduce the quantitative easing policy in 2001, ahead of other central banks. BoJ has been increasing the monetary base by purchasing government bonds and therefore, as a result,  the bank's balance sheet has been expanding rapidly. The monetary base accounts have been increasing on the liability side, which is accompanied by an increase of government bonds, on the assets side. As a matter of course, “Current Deposits” and “Banknotes”, which constitute the monetary base, are recorded as liabilities on BoJ's balance sheet.

However the accounting nature of these accounts has been ambiguous, so the propriety of the appropriation on the liability side is not clear. Therefore, we examined the accounting treatment to reveal the accounting nature of the monetary base. The result was that we were unable to confirm the liability attribute. The "Banknotes" account and "Current Deposits" account are recorded as liabilities. However, they cannot be said to be liabilities in accounting terms from both a legal and an economic point of view.

The conclusion of our research is that the accounting nature of the above-mentioned two accounts is that of deferred profit accompanied by the issuance of banknotes and the funds-supplying operation. The conventional name for these allowances for profit reserve is "Deferred Profit".We can say that the accounting framework of BoJ allows for the recording of deferred profit as a liability. Yet, this accounting framework, which allows for the recording of such monetary base accounts as liabilities, has been contributing to the creation the value amount in a circulation Moreover it appears as if the the monetary base had been increased arbitrarily by the government and the BoJ through this accounting framework and/or its functions