Expense 133
The central bank’s main responsibility is to formulate and carry out monetary aspects of economic policy. It therefore
often acts differently from other fi nancial corporations and generally has the authority from government to enforce its
mandate. In cases where the central bank makes payments that are clearly for policy rather than commercial purposes—
for example, when it pays above-market rates in a situation where the external value of the currency is under pressure
or when it acts as a development bank offering loans at below-market rates to priority industries—it may be argued
that implicit subsidies are being provided. This procedure is analogous to and consistent with the practice of treating
the difference between the market exchange rate and an alternative exchange rate imposed by the central bank as an
implicit subsidy (discussed in paragraph 5.89).
If the central bank interest rates are out of line with those of commercial banks, then the difference between fl ows
calculated using the reference rate and the actual rate set by the central bank should be recorded as implicit taxes re-
ceivable (see paragraph 5.70) and subsidies payable by government. These transactions are recorded as follows:- Below market rates on reserve deposits—Suppose the central bank pays only 3 percent to a commercial bank
on reserve deposits when the market rate is 5 percent. The following is recorded in GFS:
Although the commercial bank actually receives only 3 percent as interest, it is recorded as receiving 5 percent
as interest from the central bank and paying 2 percent to government as taxes on specifi c services (1144) (see
paragraph 5.69).
Government records a subsidy (25) to the central bank. - Above market rates for currency support—Suppose the central bank pays 7 percent to a commercial bank for a
limited period when the currency is under pressure at a time when the market rate is 5 percent. The following
is recorded:
Although the commercial bank actually receives 7 percent as interest, it is recorded as receiving 5 percent as
interest and receiving another 2 percent from government as a subsidy (25).
Government records a tax of 2 percent receivable from the central bank classifi ed as taxes on specifi c services
(1144) (see paragraph 5.69). - Below market rates to priority industries—Suppose the central bank charges only 3 percent to a priority indus-
try when the market rate is 5 percent. The following is recorded:
Although the priority industry actually pays only 3 percent as interest, it is recorded as paying 5 percent as inter-
est but receiving 2 percent from government as a subsidy (25).
Government records a tax of 2 percent receivable from the central bank classifi ed as taxes on specifi c services
(1144) (see paragraph 5.69).
Box 6.2 Implicit Subsidies of Central Bankscosts of their acquiring nonfi nancial assets other
than inventories—these payments are recorded
either as capital grants (26) or as capital transfers
not elsewhere classifi ed (2822).- Extraordinary payments into social insurance
funds, in so far as these payments are designed
to increase the actuarial reserves of these funds:
Th ese payments are recorded either as capital
grants to other general government units (2632)
or as capital transfers not elsewhere classifi ed
(2822). - Transfers made by general government units to
corporations and quasi-corporations to cover
large operating defi cits accumulated over two or
more years, or exceptional losses due to factors
outside the control of the enterprise: Th ese pay-
ments are recorded as capital transfers not else-
where classifi ed (2822) (see Box 6.3).- Th e cancellation of debts that institutional units
have incurred to government units (resulting,
for example, from loans advanced by a govern-
ment unit to a nonfi nancial enterprise that does
not have the ability to make repayments due to
trading losses accumulated over several fi nancial
years): Th ese transactions are recorded as capital
grants to other general government units (2632) or
as capital transfers not elsewhere classifi ed (2822)
if the benefi ciary is a unit other than general
government. - Payments made by general government for dam-
age to, or losses of, capital goods as a result of acts
of war, other political events or natural disasters: