The Central Bank has set aside €165m in its 2016 accounts to deal with potential losses from its bond-buying programme.

Like other central banks in the Eurosystem, the Irish Central Bank has taken an active role in the ECB's quantitative easing programme, buying up government bonds and commercial debt to help ease the financial stresses in the Euro Area, return the economy to growth and raise inflation to its target level of just below 2%.

But this action has raised the level of risk Central Banks have to deal with, particularly the risk of losses associated with a mismatch on interest rates.

The Eurosystem Central banks have increased the assets held on their balance sheet from €1 trillion to €4.2 trillion over the past decade, largely as a result of the quantitative easing programmes.

This means the Central Banks are now getting a lot of their income from investments bought at low or even negative interest rates.

But the banks' liabilities - the money they owe other parties - are largely in the form of floating or variable rate instruments.

When Central Banks eventually raise interest rates, the money they owe others will increase, but the income stream to pay those liabilities will remain at low fixed rates.

Unlike normal commercial banks, Central Banks cannot hedge against this scenario, as to do so would mean betting against their own policy (which would probably undermine the policy, which is to restore normal inflation levels and the normal interest rates that go with it).

It has been apparent for some time that Central Banks will likely lose money on the quantitative easing programme. Indeed it is viewed by some central bankers as the cost of a successful programme.

Last year the Irish Central Bank reviewed its risk profile and made changes to the way it accounts for potential losses.

As a result, it has set up a specific provision against interest rate, foreign exchange, credit and gold price risk.

In the 2016 accounts it has set aside €165m in provisions against future losses.

The Central Bank of Ireland makes substantial profits, designed to ensure its independence.

The Central Bank act requires it to pass 80% of its profits to the government, retaining 20% for its own purposes, including a general reserve to provide against trading losses.

But in a paper written by Deputy Governor Sharon Donnery and three colleagues, published today as part of its Quarterly Bulletin, the Central Bank says the Central Bank act limits its ability to create financial buffers against losses in a speedy manner.

A similar review at the US federal reserve warned that increased income rate risk from its quantitative easing programme will reduce the amount of income it pays to the Federal Government - in extreme circumstances it said the Fed could end up paying nothing to the US government.

The world's oldest central bank, the Riksbank of Sweden, said it expected to make losses over the next few years from its programme of buying bonds with long maturities to stimulate the economy.