Treasury Bills and/Or Central Bank Bills for Absorbing Surplus Liquidity: The Main Considerations

Author/Editor:

Obert Nyawata

Publication Date:

January 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2012/040

Subject:

Banking Central bank bills Central banks Financial institutions Government debt management Government securities Public financial management (PFM) Securities Treasury bills and bonds

English

Publication Date:

January 1, 2012

ISBN/ISSN:

9781463933838/1018-5941

Stock No:

WPIEA2012040

Pages:

39

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