Central bank's balance sheet management in times of systemic crises

The central bank's balance sheet has become the main instrument of monetary policy in the aftermath of the GFC and the COVID-19 health crisis. Hence, the aim of this paper is to analyze changes in the balance sheets' sizes and channels of base money creation in groups of countries, taking note of differences between them. In doing so, authors compare size and structure of the selected central banks’ balance sheets: (a) USA, Japan, the Euro area and the UK, (b) EU member states that have adopted the euro and (c) EU member states that have retained their currency. In the highly developed countries, government securities have become the largest asset in the central bank balance sheet, representing the dominant channel for creating base money. We discuss that this is a structural trend and could be regarded as a contemporary (public) debt monetization on a historical level. On the other hand, developing countries made little use of unconventional monetary policy in the past decade and foreign exchange transactions remained the most important channel for base money creation. Early reaction to the COVID-19 recession could prove to be a catalyst for a change among developing countries. However, the strong and rapid growth of central banks' balance sheets now raises the question of sustainability and negative spillovers.