Similar to BNPL for many individuals, PNPL, or print now pay later, has been the tool of choice for many global central banks since the Global Financial Crisis. As long as the music was playing, it was fun to dance. But when the music suddenly stopped, the rush to the exit caused a stampede as can be seen with the worst bond market rout ever in developed markets.

However, the damage did not just end there; but it also eroded the net worth of Central Banks that resorted to PNPL as they had to deal with record losses in their bond portfolio. As the value of the long-term bonds purchased during the money printing phase plummeted due to higher interest rates and increases in term premia, many global Central Banks’ P&Ls have turned deep into red.  Amidst this, one Central Bank – the RBI - stands out for bucking the trend, reporting bumper profits and  announcing a record $25 billion dividend.

Precisely at a time when the US Fed has reported a whopping $114 billion in operating losses for calendar year 2023, and while the Bank of England has estimated that its quantitative easing program will result in total losses of 86 billion pounds between now and 2034 as it unwinds its bond holdings, its literally a tale of laughing all the way to the bank for the RBI, and consequently for the Indian government and its citizens (assuming the government uses this bonanza prudently).

Nothing can more clearly demonstrate the value of prudence. And guess what? Due to the impact of losses, the US Fed will have to print money, not to save the economy this time, but to fund its operations till it recoups losses. In the case of the Bank of England, its losses will have to be funded by the UK Government.

So, while the Government of India can plan to put to good use the money it receives from the RBI, the US Government will have to wait for years till the Fed recoups its losses for the next dividend. The UK government will have to pay for the BOE losses annually as per law there. Bear in mind the 86 billion pounds in estimated losses by the BOE is the net loss, i.e. after accounting for the profits earned from the program (when bond prices increased) in the previous decade.

Further, the RBI profits are not one-off. Across economic cycles, when inflation has been high and low, interest rates have moved up and down, it has managed to keep its P&L in the surplus and transferred dividends consistently.

A thought experiment

If the RBI was a listed entity like Japan’s Central Bank or the Bank of Japan, and investors are ready to buy it at a 5 per cent dividend yield today (assuming profits can increase over the years), the RBI would be worth a staggering $ 500 billion. And much more if one is ready to accept a lower dividend yield. But again, let’s stick to prudence here, too, and not think along those lines. This point is just to highlight what a wonderful job the RBI and its Governors have done over the decades.

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