A new ranking of central bank assets as a share of GDP reveals striking differences in how aggressively major economies have used their central banks to manage financial conditions — with some institutions holding assets worth well over half their nation’s annual economic output.
Central banks expanded their balance sheets dramatically over the past two decades, first in response to the 2008 global financial crisis and then again during the COVID-19 pandemic. The tool they used is called quantitative easing — the purchase of government bonds and other assets to push down long-term interest rates and support economic activity. How much they bought, relative to the size of their economies, varies widely from country to country.
Japan stands out at the extreme end of this spectrum. The Bank of Japan has spent decades fighting deflation — persistently falling prices — and has accumulated assets that dwarf other major central banks as a share of economic output. Its balance sheet reflects years of aggressive bond-buying and a policy framework that has kept interest rates near zero for an extended period.
In Europe, the European Central Bank and the Swiss National Bank also built large balance sheets relative to GDP. The ECB responded to both the eurozone debt crisis of the early 2010s and the pandemic with major asset purchase programs. Switzerland, a small open economy with a currency that investors often rush into during times of stress, has long bought foreign assets to prevent the franc from appreciating too sharply and hurting exports.
The U.S. Federal Reserve, while enormous in absolute dollar terms, ranks lower on this relative measure. The American economy is so large that even the Fed’s multi-trillion-dollar balance sheet represents a smaller fraction of GDP than its Japanese or Swiss counterparts. The Fed has been actively reducing its holdings — a process known as quantitative tightening — as it works to return policy to a more normal footing after years of aggressive stimulus.
For investors and policymakers, balance sheet size matters because it shapes how much room a central bank has to act in a future crisis. An institution already holding vast assets relative to its economy may face greater political and market constraints on further expansion. It also affects currency dynamics: very large balance sheets, especially when funded by money creation, can weigh on a currency’s long-term value, though the relationship is complex and depends heavily on what other countries are doing at the same time.
As central banks in many countries begin or continue to shrink their balance sheets, how quickly they do so — and whether economies can absorb the change — remains one of the key questions in global monetary policy.
