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While ECB-chairman Mario Draghi firmly continues buying up bonds (but for now decided to keep rates where they are and not increase the pool of eligible assets by relaxing the boundaries of its purchase program), an important question arises. Can a central bank go bankrupt? Central banks can certainly become insolvent or, in other words, have a negative equity with the value of their liabilities surpassing the value of their assets. Better yet, it is very likely that the coming years central bank will have to take enormous losses on its bond positions and that they will get into solvency troubles. The solution differs. In the meanwhile, central banks finance governments to an increasing degree.

The Obvious

The Less Obvious

The Irony of Low Interest Rates

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