Brendan Greeley’s piece on Federal Reserve profits (“Fed losses matter more in these unusual times”, On Wall Street, May 24) misapplies commercial banking logic to a sovereign monetary authority. The Fed isn’t a bank — not even a “special” one.
Unlike private banks, the Fed faces no solvency constraints. It cannot run out of dollars, and its “losses” are accounting entries, not real threats. Its nominal capital is irrelevant — it could operate indefinitely with negative equity (as the Bank of Japan has demonstrated). The Fed’s liabilities become the ultimate means of payment, not obligations needing backing.
The Fed’s balance sheet is a policy tool, not a profit-seeking enterprise. Its occasional remittances to the US Treasury represent seigniorage (the privilege of issuing money), not profits in any commercial sense. When these remittances pause during policy-driven “losses”, it doesn’t impair the Fed’s operations.
Greeley suggests the Fed’s historical remittances bolstered its political independence. But central bank autonomy stems from statutory authority, not accounting profits. The European Central Bank and BoJ have both maintained independence while remitting minimal amounts.
Stablecoins pose no threat to the Fed’s monetary sovereignty. Whether the public uses cash or digital dollars, the Fed remains the system’s anchor.
The real risks lie elsewhere: in political misunderstanding of monetary operations, confusion between monetary and fiscal policy, and attempts to politicise rate-setting. These deserve attention — not misplaced concerns about accounting losses that are inherent to modern central banking.
Brian James Gross
Former Special Assistant to the Board of US Federal Reserve, Austin, TX, US
