Suffering Billions in Losses: No Immediate Contributions to the Treasury by Dutch Central Bank

This article was last updated on February 23, 2024

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The Impact on the Dutch Treasury

In a significant turn of events, the Dutch treasury will not be seeing any profit distribution from De Nederlandsche Bank (DNB) in the foreseeable future. Over the past years, billions have routinely flowed from the central bank into the treasury. Unfortunately, this substantially advantageous pattern will cease for the time being.

A Loss of Billions

The Dutch Central Bank recorded a significant financial loss of 3.5 billion euros in the past year alone, as shown by the preliminary annual accounts. This loss will be handled using a specially created reserve to absorb financial risks along with other DNB buffers. A loss of this magnitude is a hefty blow, leaving a significant impact.

Losses Across Central Banks Globally

The financial woes of the Dutch Central Bank are a reflection of a global trend that hit many central banks. The European Central Bank recently reported a colossal loss of close to 8 billion euros. In comparison, the American Federal Reserve (FED) disclosed a whopping loss exceeding 100 billion euros.

The Influence of Rapidly Rising Interest Rates

These monumental losses among central banks are a direct result of recent efforts to sustain the economy. Central banks have been purchasing debt securities worth hundreds of billions from governments and corporations. As a consequence, they earn some interest from these securities, albeit a relatively low rate. Central banks also have to deal with considerable expenditures with banks depositing their capital with the central bank. Interest rates offered to banks within the euro zone have drastically increased, transitioning from negative interest to a whopping 4 percent.

The Dutch Central Bank’s Plan

The Dutch Central Bank forecasts that losses will continue until at least 2028. After this period, it hopes to begin replenishing its buffers. When the treasury will again receive payouts remains uncertain. Since the introduction of the euro, DNB has handed over more than 16 billion euros to the Dutch State. In a worst-case scenario, the central bank’s financial standing could deteriorate to the point where the state is obliged to step in. However, according to DNB, current circumstances are not that dire.

Conclusion

The Dutch Central Bank’s losses are significant, affecting not only its operations but also contributions to the Dutch treasury. This situation echoes globally, with many central banks recording loss. An interesting factor contributing to these losses is the rapid increase in interest rates.