# Are Central Banks Privately Owned?



## Airtight (21 Jan 2009)

If so why are we and the rest of the world letting these private enterprises print our money?


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## Protocol (21 Jan 2009)

*Re: Are the Central Banks are privately own?*

No, they are not private companies.

They are owned by the State.  Profits accrue to the State.


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## Sherman (21 Jan 2009)

*Re: Are the Central Banks are privately own?*

First, change your title, it makes no sense.

Second - you are partly right if you're thinking of the Federal Reserve in the United States, which is a to a degree a private entity.  

Perhaps you're thinking of the physical printing of banknotes, in which case this is often carried out by private printers like De La Rue.  Letting them print our money is no different to letting them print our newspapers - it's a simple printing operation (albeit with infinitely greater security precautions).


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## Airtight (21 Jan 2009)

Firstly, did you under stand the question, yes you did because you answered it

Secondly, if the country does own its central bank: How can a country be in debt to itself?

Thirdly, things just don't add up in my mind; What is basis for your beliefs that the central banks are public companies? Why cant we get there accounts under freedom of information?


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## Airtight (21 Jan 2009)

*Re: Are the Central Banks are privately own?*



Protocol said:


> No, they are not private companies.
> 
> They are owned by the State.  Profits accrue to the State.



Really, so if we own the central bank why to we worry about the interest we pay on loans to ourself? We are just paying it back to ourselfs.


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## george.shaw (21 Jan 2009)

Big and important question right there.

The Federal Reserve is privately owned and some see it as unconsitutional. Presidential candidate Ron Paul explains it well in this video:

[broken link removed]#


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## Protocol (22 Jan 2009)

Here are the accounts of our central bank:

[broken link removed]

They made 228m profit in 2007.

Their assets are 50bn+.


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## Sunny (22 Jan 2009)

*Re: Are the Central Banks are privately own?*



Airtight said:


> Really, so if we own the central bank why to we worry about the interest we pay on loans to ourself? We are just paying it back to ourselfs.


 
What do you mean?


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## Protocol (22 Jan 2009)

*Re: Are the Central Banks are privately own?*



Airtight said:


> Really, so if we own the central bank why to we worry about the interest we pay on loans to ourself? We are just paying it back to ourselfs.


 
Borrowers pay interest.

Savers earn interest.

So, yes, the interest paid on debt is income to somebody else.

What has happened in Irl is that personal debt (mortgages, personal loans, CCs, etc) has grown a lot compared to incomes.  So debt repayments are higher, and household balance sheets are stretched.

A lot of this money has been borrowed from abroad.


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## z109 (22 Jan 2009)

I think you are under the misapprehension that the Central Bank lends money to the government (and that this is the national debt). This is not the case. Government debt is sold on the 'open' market.


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## z109 (22 Jan 2009)

george.shaw said:


> Big and important question right there.
> 
> The Federal Reserve is privately owned and some see it as unconsitutional. Presidential candidate Ron Paul explains it well in this video:
> 
> [broken link removed]#


It's not really privately owned:
[broken link removed]


> The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
> As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an _independent_ central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
> The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.




So it is structured much like the semi-state sector here, with the shares being similar to ESOPs... sort of! But it is not really a private company (or a collection of private companies). The ECB has a similar structure with the difference being that the National Central Banks operate as the dividend holders depending on their investment:
http://www.ecb.int/ecb/orga/capital/html/index.en.html
and the rate is based on profit and loss, rather than fixed at 6%.


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## Airtight (22 Jan 2009)

yoganmahew,

your right I was thinking that the our central bank lends our government money, thus owning some of the our national debt.

The government sell bonds to the open market, this raises capital, then we pay interest back to the buyers. Is there a limit to the amount of bonds the government can sell?


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## z109 (22 Jan 2009)

Airtight said:


> yoganmahew,
> 
> your right I was thinking that the our central bank lends our government money, thus owning some of the our national debt.
> 
> The government sell bonds to the open market, this raises capital, then we pay interest back to the buyers. Is there a limit to the amount of bonds the government can sell?


The more you borrow, the riskier you become, the higher the amount you have to pay in interest, the more of your government income you spend on interest, the less you have for services and infrastructure, the lower the government income becomes, the less debt you can service, the more you need to borrow to pay the interest on the debt you already have, the higher the interest rate you are charged, the more you have to rollover each year, the higher you tax, the more tax evasion, the greater the cronyism, the more you borrow to line the pockets, the higher the interest you pay, the more you become.... Africa.

Yes. Heading towards 100% of GDP would be bad. I reckon we'll hit that by late next year some time.

I believe the peak interest payment in the past was something about 25% of government revenue. 1990 was it? But I don't know what percentage of GDP the national debt was.

If you have a plan for how you can earn enough to pay back the debt, obviously you can borrow more. Perhaps the government can talk to the Central Bank and see how they managed to let individuals borrow eight times their earning on a hundred percent mortgage? Maybe we could extend that scheme to the nation! Well... it could happen!


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## george.shaw (22 Jan 2009)

re: It's not really privately owned:
[broken link removed]

Not completely correct. As per Wikipedia:
The *Federal Reserve System* (also the *Federal Reserve*; informally *The Fed*) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system.

A large and varied group of criticisms has been directed against the Federal Reserve System. One critique, typified by the Austrian School, is that the Federal Reserve is an unnecessary and counterproductive interference in the economy.[108] According to this theory, interest rates should be naturally low during times of excessive consumer saving (because lendable money is abundant) and naturally high when high net volumes of consumer credit are extended (because lendable money is scarce). These critics argue that setting a baseline lending rate amounts to centralized economic planning; a hallmark of socialist and communist societies; and inflating the currency amounts to a regressive, incremental redistribution of wealth.[109]
Some people who criticize the Federal Reserve System also criticize fiat currency and support a return to the gold standard.[110] Some critics state that the Federal Reserve System is unconstitutional because Congress is empowered by the Constitution to coin money, and is not empowered to print money.[111] Others state that the Federal Reserve System supports fractional reserve banking, which they claim resembles an unsustainable pyramid scheme.[109] Some critics argue that the Fed lacks accountability and transparency or that there is a culture of secrecy within the Reserve.[112] In addition, the Fed sponsors much of the monetary economics research in the US. Some believe this makes it less likely for researchers to publish findings challenging the _status quo_ that is the Federal Reserve.[113] The Federal Reserve Board Abolition Act is a proposed remedy to these issues.

*[edit] Historical criticisms*

Criticisms of the Federal Reserve System are not new, and some historical criticisms reflect current concerns.
At one end of the spectrum are economists from the Austrian School and the Chicago School who want the Federal Reserve System abolished.[114] They criticize the Federal Reserve System’s expansionary monetary policy in the 1920s, arguing that the policy allowed misallocations of capital resources and supported a massive stock price bubble. They also cite politically motivated expansions or tightening of currency in the 1970s and 1980s.[114]
Thomas Jefferson stated "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."[115]
http://en.wikipedia.org/wiki/Federal_Reserve


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## Airtight (27 Jan 2009)

I also recall an Anderson guy, stating that the banks where the enemy of the US and he managed to abolish or exclude the central bank (now the FED).

So the question is still out there: are the central banks private bodies?

Why did they move a way from gold standard, surely this means money really is worth noting as it not backed up by anything?


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## Protocol (27 Jan 2009)

They are an arm of the State responsible for the money supply.

They are not a private commercial bank with shareholders.

Any profits they make accrue to the State.

They are usually independent from Govt, for good reasons.


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## Protocol (27 Jan 2009)

When commodity money was in existence, yes money was backed by metals, e.g. gold.

Now we have moved to fiat money, where money is backed by the strength and stability of the CB and the State.


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## Airtight (29 Jan 2009)

FIAT money: Thats why the pound is so weak?


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## Protocol (30 Jan 2009)

Commodity money had intrinsic value.

Fiat money is just backed by the strength of the institutions, i.e. people accept it as they believe others will accept it and they believe in its value.

That is nothing to do with the recent weakness of sterling.


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## george.shaw (30 Jan 2009)

There is now a severe lack of trust and confidence in Gordon Brown and his government and there are real concerns that the UK itself could default on it's bonds. 
Savers are worried about their savings in banks and the fact that pounds, euros and the dollars are being printed (electronically created) at a rate never before seen and on a global scale. 

This is why all fiat currencies are declining in value and why sterling has collapsed from some £250/oz in early 2006 to £645/oz today.
[broken link removed]


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