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Central banks like the Bank of England and the Fed must cover their costs. I was wondering how they do this? I can think of two possible mechanisms:

  1. Government allocates money from its tax revenue to the central bank, which then uses this money to cover costs.

  2. The central bank creates an amount of money necessary to cover its costs.

This question is specifically about central banks as they alone have the authority to create new money.

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    $\begingroup$ You can easily find the Bank of England's annual accounts - it does not use either method $\endgroup$
    – Henry
    Nov 19, 2019 at 0:26
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    $\begingroup$ Possible duplicate of How does a bank create new money when it pays its own staff? $\endgroup$
    – user18
    Nov 19, 2019 at 1:07
  • $\begingroup$ @KennyLJ This is about central bank though... so the answer might be different? $\endgroup$
    – Art
    Nov 19, 2019 at 1:58
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    $\begingroup$ Yes, they are. And in the US at least, if profits did not exceed costs, they’d be funded by the Treasury. $\endgroup$
    – dismalscience
    Nov 19, 2019 at 17:33
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    $\begingroup$ Indeed the Fed does, at least during a contingency. During the US government shut-down of 2018-2019, the Fed did not shut down and its staff continued to be paid, using coupon payments from its QE portfolio. $\endgroup$
    – Michael
    Nov 20, 2019 at 3:39

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In general, central banks are profitable because they hold a portfolio of interest bearing assets (government bonds) against non-interest bearing liabilities (currency).

A central bank's revenue is generally more than enough to pay for its staff and other costs, leaving some left over to remit to the national government.

In 2020, the Bank of Canada had almost \$2.6 billion in revenue against about \$0.6 billion in costs leaving a net income of about \$2 billion. As you can see in their financial results here: https://www.bankofcanada.ca/publications/annual-reports-quarterly-financial-reports/annual-report-2020/financial-results/

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