How to Set Up A Cash Buffer: A Practical Guide to Developing and Implementing a Cash Buffer Policy

IMF How To Notes, December 21, 2020

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How to Set Up A Cash Buffer: A Practical Guide to Developing and Implementing a Cash Buffer Policy

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Bibliographic details

• Authors: Yasemin Hurcan, Emre Balibek, Fatoş Koç
• Published: December 21, 2020
• Series: IMF How To Notes
• DOI: https://doi.org/10.5089/9781513563848.061

Role and rationale for a cash buffer

• Maintains liquidity in government bank accounts during budget execution when there is considerable cash flow volatility and timing mismatches concerning revenue collections and expenditures, debt inflows, and debt service.
• From a debt management perspective, holding an appropriate level of cash balance serves to mitigate funding risk.
• Effective cash balance management is especially critical when there is heightened uncertainty about the magnitude and timing of cash flows, exemplified by the coronavirus disease (COVID-19) pandemic.

Practical approaches to developing a cash buffer policy

• Discusses the role of the cash buffer for managing cash balances.
• Offers practical approaches to developing a policy framework that balance:
  • Risk mitigation objectives.
  • The cost of carry (opportunity cost of holding cash).

Key findings and themes

• Cash balance management aims to address timing mismatches and ensure availability of liquidity.
• A cash buffer is both a cash management and a debt management tool.
• The policy framework should explicitly consider trade-offs between reducing funding risk and the cost of holding cash.

Publication and metadata (as stated in the source)

• Authors: Yasemin Hurcan, Emre Balibek, Fatoş Koç
• Date: December 21, 2020
• Pages: 31
• Volume: 2020
• Issue: 004
• Series: How-To Note No. 2020/004
• DOI: https://doi.org/10.5089/9781513563848.061
• Stock No: HTNEA2020004
• ISBN: 9781513563848
• ISSN: 2522-7912
• Citation preview (format: Chicago): Yasemin Hurcan, Emre Balibek, and Fatoş Koç. "How to Set Up A Cash Buffer: A Practical Guide to Developing and Implementing a Cash Buffer Policy", IMF How To Notes 2020, 004 (2020), accessed 6/25/2026, https://doi.org/10.5089/9781513563848.061

International Monetary Fund — How To Note No. 2020/004

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