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Treasury Bills and/Or Central Bank Bills for Absorbing Surplus Liquidity

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  • Obert Nyawata
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    Abstract

    This paper discusses the challenging question of whether central banks should use treasury bills or central bank bills for draining excess liquidity in the banking system. While recognizing that there are practical reasons for using central bank bills, the paper argues that treasury bills are the first best option especially because positive externalities for the financial sector and the rest of the economy. However, the main considerations in the choice should be: (i) operational independence for the central bank; (ii) market development; and (iii) the strengthening of the transmission of monetary policy impulses.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=25697
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/40.

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    Length: 39
    Date of creation: 01 Jan 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/40

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    Related research

    Keywords: Liquidity management; Banking sector; Bond issues; Excess liquidity; Monetary operations; central bank; government securities; monetary policy; central banks; debt management; inflation; money market; money markets; open market operations; public debt; treasury securities; monetary fund; government securities markets; domestic debt; public finance; monetary policy instruments; reserve bank; public debt management; monetary management; monetary stabilization; public finances; monetary frameworks; debt management policies; transmission of monetary policy; government debt; monetary policy objectives; debt management office; short-term debt; monetary theory; hong kong monetary authority; monetary authorities; monetary instruments; monetary base; reserve holdings; monetary authority; domestic debt issuance; national bank; monetary policy transmission mechanisms; private sector debt; external financing; debt crisis; debt management agencies; outstanding government securities; monetary arrangements; domestic borrowing; foreign debts; debt burden; external finance; monetary policies; national debt; monetary liquidity; net debt; issuance of government securities; debt management policy; debt market; government securities market; monetary aggregates; deficit financing; balance of payments; coordination of debt management; monetary transmission; monetary stability; debt dynamics;

    This paper has been announced in the following NEP Reports:

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Vincent Reinhart & Brian Sack, 2000. "The Economic Consequences of Disappearing Government Debt," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 163-220.
    2. M S Mohanty, 2002. "Improving liquidity in government bond markets: what can be done?," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 49-80 Bank for International Settlements.
    3. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
    4. Gravelle, Toni, 1999. "Liquidity of the Government of Canada Securities Market: Stylized Facts and Some Market Microstructure Comparisons to the United States Treasury Market," Working Papers 99-11, Bank of Canada.
    5. Serge Jeanneau & Camilo E Tovar, 2008. "Domestic securities markets and monetary policy in Latin America: overview and implications," BIS Papers chapters, in: Bank for International Settlements (ed.), New financing trends in Latin America: a bumpy road towards stability, volume 36, pages 140-163 Bank for International Settlements.
    6. Faig, Miquel, 2000. "The Optimal Structure of Liquidity Provided by a Self-Financed Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 746-65, November.
    7. World Bank & International Monetory Fund, 2001. "Developing Government Bond Markets : A Handbook," World Bank Publications, The World Bank, number 13865, October.
    8. repec:idb:brikps:34698 is not listed on IDEAS
    9. Garry J. Schinasi & T. Todd Smith & Charles Frederick Kramer, 2001. "Financial Implications of the Shrinking Supply of U.S. Treasury Securities," IMF Working Papers 01/61, International Monetary Fund.
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    Cited by:
    1. Michael Mbate, 2013. "Domestic Debt, Private Sector Credit and Economic Growth in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 25(4), pages 434–446.
    2. Primus, Keyra, 2013. "Excess Reserves, Monetary Policy and Financial Volatility," MPRA Paper 51670, University Library of Munich, Germany.

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