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

Obert Nyawata

No 2012/040, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; central bank bank bill; central bank securities; interest rate; market liquidity; money market; yield curve; consolidated public sector; monetary policy; liquidity management; government securities; fixed income; public finance; central bank loss; market fragmentation; T-bill market; monetary management; Central bank bills; Government securities; Treasury bills and bonds; Securities; Government debt management; Africa; Global (search for similar items in EconPapers)
Pages: 39
Date: 2012-01-01
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Citations: View citations in EconPapers (8)

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