The price of money: The reserves convertibility premium over the term structure

Kjell Nyborg and Jiri Woschitz

No 18371, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Central-bank money provides utility by serving as means of exchange for virtually all transactions in the economy. New reserves (money) are issued to banks in exchange for collateral such as government bonds. An asset's degree of direct convertibility into fresh reserves may affect its utility and, consequently, its market price. We show the existence of a government-bond reserves convertibility premium, which tapers off at longer maturities. Essentially, there is a pure monetary component to some asset prices. Our findings have implications for our understanding of liquidity premia, the term structure of interest rates, and the impact of central-bank collateral policy.

JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Date: 2023-08
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Working Paper: The Price of Money: The Reserves Convertibility Premium over the Term Structure (2024)
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