Managing Government Cash

Glossary

Cash balance

The total amount of cash held by a government at a given time as deposits, which is immediately available to be used to cover financial needs and obligations. It differs from liquidity, which can encompass other assets.

Cash buffer 

The cash buffer is a specific policy that maintains a minimum target for the cash balances held on deposit at the central bank in the TSA. It differs from the liquidity buffer or targets, which might encompass other assets, such as cash instruments.

Cash instruments

Financial instruments that can be quickly and easily converted to cash. They are typically used to raise or invest funds in the short term.

Cash/liquidity planning 

The process of forecasting the future availability of cash based on projected cash inflows and outflows to ensure that the government has sufficient liquidity to meet its financial obligations as they arise. This involves identifying periods of potential cash shortages or surpluses and calibrating investment or borrowing plans to net these imbalances cost-effectively.

Cash management

The strategy and associated processes for managing the government’s short-term cash flows and cash balances, both within the government and between government and other sectors. In this sense, cash management’s definition is the most comprehensive term, encompassing cash flow forecasting, liquidity risk management and the selection of cash instruments, in addition to all other activities required to manage the government’s short-term cash flows and balances.

Central Counterparty (CCP)

A CCP is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. A CCP becomes counterparty to trades with market participants through an open offer system, or another legally binding arrangement.

Counterparty risk

It is the risk that the counterparty to a transaction could default before the final settlement of the transaction's cash flows.

Foreign exchange (FX) swap

An FX swap is an agreement to simultaneously borrow in one currency and lend in another at an initial date, then exchange the amounts at maturity. It is helpful for risk-free lending, as the swapped amounts are used as collateral for repayment. When the swap is over, if principal amounts were exchanged, they are exchanged once more at the agreed-upon rate (which would avoid transaction risk) or the spot rate.

General Collateral Segment (GCS) repo rate

GCS refers to a basket of bonds that trade in the repo market at the same or a very similar repo rate, called the GCS repo rate. GCS bonds can, therefore, be substituted for one another without changing the repo rate much, if at all. In other words, the buyer in a GCS repo is indifferent to the GCS bonds they actually receive. The fact that GCS bonds can be substituted for one another means that the driver of the GCS repo rate is not the supply and demand of specific bonds, but of cash. For this reason, a GCS repo is sometimes called a cash-driven repo. The GCS repo rate is highly correlated with unsecured money market interest rates as a measure of the cost of borrowing cash.

Liquidity buffer

The liquidity buffer is the target of liquidity holdings, encompassing the central bank balances, as is the case with the cash buffer, in addition to other assets such as cash instruments.

Liquidity policy

The set of rules, strategies, and practices that a government implements to manage its liquidity with the purpose of meeting its financial obligations.

Liquidity risk 

The risk that a government may fail to meet its short-term financial obligations due to a lack of liquidity.

Liquidity risk management 

Strategies and practices to maintain sufficient liquidity to meet financial needs, including during periods of market stress and crises.

Outturn data

The amounts of actual expenditures and receipts for a completed period.

Primary Dealers (PDs)

PDs are financial intermediaries, typically large banks, appointed by a DMO to perform certain specialised functions in the government securities market. PDs and DMOs work to support government funding and market development. The primary dealership system is the underlying institutional arrangement between these two parties, where the primary dealership firms usually have exclusive access to buy government bonds in the primary market in return for certain obligations.

Single counterparty credit limit

It is a non-risk adjusted back-stop measure to ensure that the sum of all net credit exposures of a covered company and all of its subsidiaries to a single counterparty, including all of its affiliates, are within a prudent limit at all times.

Special bond

A special bond is subject to exceptional demand in the repo and cash markets compared with those nearest to it on the yield curve. Competition to buy or borrow special bonds causes potential buyers in the repo market to offer cheap cash in exchange. Therefore, a bond can be identified as trading ‘special’ when its repo rate is distinctly lower than the GC repo rate.

Treasury Single Account

A TSA is a unified structure of government bank accounts that enables the consolidation and optimum utilisation of government cash resources. Thus, a TSA often refers to a bank account or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at the end of each day. This banking arrangement for government transactions is based on the principle of fungibility of all cash irrespective of its end use. While it is necessary to distinguish individual cash transactions (e.g. a typical revenue and expenditure transaction of a government unit) for control and reporting purposes, these objectives are achieved through the accounting system and not by holding and/or depositing cash in transaction-specific individual bank accounts. The TSA might cover accounts from other public sector entities besides the central government and often, although not necessarily, includes a centralised payment authorisation and settlement system.

Tri- party repo (or reverse repo)

A tri-party repo (or reverse repo) is a transaction for which post-trade processing, collateral selection, payments and deliveries, custody of collateral securities, collateral management and other operations during the life of the transaction, is outsourced by the two parties to a third-party agent. The use of a tri-party service does not change the risk relationship between the two parties. If one of the parties defaults, the impact falls entirely on the other party. This means that parties to tri-party repo need to continue to sign bilateral legal agreements.