Performs operations on the open market. Open market operations are a quick and effective method of influencing the money supply
Process
Since most of the money nowadays exists in in electronic format, and not in the form of banknotes and coins, operations on open market produced by increasing ( lending) or decrease ( debit) the amount of basic money (monetary base) in the bank's reserve account with the central bank. Thus, the process does not require printing. new currency... However, it increases the central bank's obligation to print money if the commercial bank needs banknotes in exchange for reducing the electronic balance sheet.
When there is an increased demand for the underlying money, the central bank must take action if it wishes to contain short-term interest rates at the target level. He does this by increasing the supply of base money. central bank enters the open market to buy a financial asset (government bonds, foreign exchange, or other relatively stable assets). To pay for the asset, the central bank creates new base money and credits it to the account of the bank that sells the asset. Thus, the monetary base in the economy increases. Conversely, if the central bank sells assets on the open market, the corresponding amount of the underlying money is debited from the buying bank's account, thus reducing the monetary base.
Possible targets
- In inflation targeting, open market transactions are used to maintain a certain short-term interest rate in debt markets. The target value of the rate changes periodically to keep inflation within the established band. However, other monetary policy options also use open market operations: the Federal Reserve, the Bank of England and the European Central Bank use open market operations to achieve their interest rates.
- In addition to the target level of interest rates, there may be other target indicators for open market operations. The goal may be to reduce the money supply, as in the late 1970s and early 1980s in the United States under the presidency of Paul Volcker.
- Under a currency board, open market operations are used to maintain a fixed exchange rate in relation to foreign currency.
Specificity in different countries
USA
Money is created and destroyed with a change in the reserve account commercial bank at the Fed. The Federal Reserve has been operating on the open market since the 1920s through the Open Market Division of the Federal Reserve Bank of New York at the behest of the Federal Open Market Committee. Open market operations are also one of the ways to control inflation: the sale of government bonds to commercial banks reduces their ability to issue loans, so some of the money is withdrawn from circulation.
Eurozone
Russian Federation
The Bank of Russia also has the ability to carry out transactions with corporate bonds and shares (with the latter only within the framework of REPO transactions); the bank can buy government bonds only in the secondary market in order to prevent direct financing of the budget. The Central Bank can trade in government securities through the corresponding section of the MICEX, or on the over-the-counter market, while only Russian credit organizations should act as counterparties.
see also
Notes (edit)
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Open market operations (securities market operations)
One of the functions of the central bank is to buy and sell securities, which are considered one of the most reliable types of financial assets. The main counterparties of the central bank in these operations are commercial banks. This gives the central bank an opportunity to actively influence the resources at the disposal of commercial banks.
Indeed, if in carrying out accounting policies the role of the central bank is relatively passive (commercial banks decide whether to register all bills, whether to receive a loan secured by their securities), then by buying and selling securities on the open market (for example, on the stock exchange), the central bank can effectively influence development of monetary relations in the country. In addition, operations on the open securities market - market instrument corresponding to the market "rules of the game".
The central bank, participating in the auction, is at the same time a full and equal agent of the market, the same as all its other participants. Therefore, the policy of conducting operations on the open market is considered the most effective tool. monetary policy.
In a period of high market conditions, the central bank imposes on commercial banks the purchase of government securities, which significantly narrows the ability of commercial banks to provide loans and thereby reduce the amount of money in circulation. During a downturn, the central bank reverses the transaction.
Having understood the effect of the mechanism for regulating the volume of the money supply through operations on the open market, let us ask ourselves the question: why do commercial banks (and the population) agree to buy and sell government securities? The point is this: if the central bank sells government securities (for example, bonds), their supply exceeds demand, which means that the prices of these securities go down. This increases the attractiveness of buying government securities. If the central bank buys government securities, the demand for them increases, which leads to an increase in their prices. This means that the population has an incentive to sell the government securities owned by it.
So, if the central bank sells government securities, then a bond with a face value of $ 100 with 10% per annum may cost, for example, $ 80.The interest will be $ 10, which will provide the buyer with an income of 12.5% (10/80 100). When the central bank starts buying securities, the demand for them increases, their market price increases (for example, to $ 125), and the yield drops to 8% (10/125,100). Under these conditions, bondholders would prefer to sell them to the government and receive the corresponding exchange rate difference.
Open market operations- the most widely used method of regulating the volume of money supply in countries with a developed, stably functioning economy, which, moreover, have a sufficiently capacious and reliable market government bonds (USA, UK, Canada).
There are several reasons for this. Firstly, it is the fastest and easiest way to solve the regulation problem. credit funds, and, consequently, the rate of development of production. In addition, a fairly accurate calculation is possible here - it is always clearly defined how many government bonds should be sold or, conversely, bought. Second, using discount rate complicated, in particular, by the fact that commercial banks in a developed market system Central bank loans are relatively rarely used, and usually precisely because they invest heavily in the purchase of government bonds.
Therefore, most often it performs more informational function than stimulating, and in countries with developed market economy this tool is rarely used. It is also difficult in these countries to use the reservation rate. This is due to the fact that the funds in the reserve do not bring interest, in fact, remaining dead capital. And an increase in the volume of such capital is undesirable for either commercial banks or society as a whole. Note that in the credit policy of Russia, the practice of conducting such operations is still in its infancy.
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3.2.4. Open market operations
Central bank operations on the open market are currently the main instrument in world economic practice in the framework of the applied indirect methods of monetary policy. The central bank sells or buys at a predetermined rate of highly liquid securities, including government securities that form the country's internal debt, at its own expense in the open market. This instrument is considered the most flexible instrument for regulating credit investments and liquidity of commercial banks.
The peculiarity of open market operations is that the central bank can exert a market effect on the amount of free resources available to commercial banks, which stimulates either a reduction or expansion of credit investments in the economy, while simultaneously affecting the liquidity of banks, respectively, decreasing or increasing it. This effect is carried out through the change by the central bank of the purchase price from commercial banks or their sale of securities on the open market.
The main securities traded on the open market include the most liquid securities that are actively traded in the secondary market, the risk for which is extremely insignificant. Such securities are the various liabilities issued by the authorities:
Debt certificates (Bank of the Netherlands, Bank of Spain, European Central Bank);
financial bills (Bank of England, German Bundesbank, Bank of Japan);
bonds (Bank of Korea, Central Bank of Chile, Bank of Russia).
The choice of securities depends on the degree of development of the financial market
and the independence of the central bank, its ability to conduct transactions not only with government securities, but also with securities of other issuers.
Central bank impact on money market and the capital market is that by changing interest rates on the open market, the bank creates favorable conditions for credit institutions to buy or sell government securities to increase its liquidity. Open market operations are conducted by the central bank, usually in conjunction with a group of large banks and other financial credit institutions.
Open market operations are more adapted to short-term market fluctuations in comparison with accounting policies.
In the open market, central banks use two main types of transactions: direct deals and repurchase agreements.
Direct trades mean buying and selling securities with immediate delivery. The buyer becomes the unconditional owner of the securities. These types of transactions do not have a maturity date. Interest rates are set at an auction.
REPO transactions are carried out under the terms of a buyback agreement. Direct repo deals mean the purchase of securities by the central bank with the dealer's obligation to buy them back after a certain period of time. When concluding reverse REPO deals, or paired ones (sometimes they are also called mismatch deals), the central bank sells securities and undertakes to buy them back from a dealer after a certain period of time. These deals are convenient because maturities can vary.
By type, open market operations are divided into dynamic and defensive.
Open market dynamic operations are aimed at changing the level bank reserves and the monetary base. They are permanent and use direct deals.
Protective operations are carried out to adjust reserves in the event of their unexpected deviations from a given level, that is, they are aimed at maintaining the stability of the financial system and bank reserves. For this kind of transactions, REPO transactions are used.
Repo transactions were widely used by the Bank of Russia from 1996 until the 1998 financial crisis. The subjects of the transactions were short-term government bonds (GKO) and federal loan bonds (OFZ).
The condition for the conclusion of a direct REPO transaction was a short position of the dealer upon conclusion of a direct REPO transaction, a short position of the dealer based on the results of trading within the limit established by the Bank of Russia. That is, transactions were concluded only when the dealer's obligations exceeded the amount of funds previously deposited in the trading system. After the crisis, the Bank of Russia authorized the conduct of inter-dealer REPO - the conclusion of REPO transactions with GKO - OFZ between dealers who meet certain criteria. It was assumed that this would allow the Bank of Russia to reduce the volume of money issue due to a more expeditious redistribution of bank reserves.
Application of open market operations as a tool monetary policy depends on the level of development, the institutional environment and the degree of liquidity of the government securities market. After the 1998 financial crisis, the Bank of Russia does not have this opportunity. Operations are hindered by the absence of the Central Bank of the Russian Federation in the portfolio government papers in demand. Their renewal will depend on the RF Government's decision to re-register a sufficient portion of the portfolio in securities with market characteristics.
Today the Bank of Russia conducts operations only with federal bonds. This is due to the fact that, until recently, the securities market of the constituent entities of the Russian Federation was not sufficiently developed. At the same time, small volumes and low liquidity of these securities did not allow them to be used as a basic instrument for operations. The issue of using in the future the bonds of the constituent entities of the Federation as a basic asset for conducting operations on the open market began to be discussed more and more often.
It should be noted that the decision by the Bank of Russia on the admission of an asset or liability, of a particular issuer for use in banking operations should not be associated with a specific issuer or with a specific asset. V recent times individual corporate issuers managed to obtain government guarantees for their obligations from some entities Russian Federation... These issuers apply to the Central Bank of the Russian Federation with a request to include their assets in the list of securities for operations by the Bank of Russia on the open market.
The inclusion of an asset of a corporate issuer in the list of securities accepted by the Bank of Russia as collateral does indeed give a positive result at first. The issuer's securities are included in the Lombard List of the Central Bank of the Russian Federation - a list of securities that are accepted as collateral for REPO transactions. This can cause an increase in the attractiveness of such securities, an increase in the activity of trading with them. However, the Central Bank of the Russian Federation does not undertake to keep these securities on the Lombard List forever. At the slightest adverse change in the circumstances of the issuer's financial position, the Bank of Russia excludes such securities from the pawnshop lists, which violates the stability of the securities market. To avoid such a situation in the securities market, he decided not to include bonds of individual issuers in his operations. In addition, he does not have the ability to track the financial position of each issuer in order to determine how appropriate its bonds are to remain on the Lombard list.
The specificity of the regulation of the Russian stock market is such that the Central Bank of the Russian Federation can carry out transactions on stock market only in the government securities sector of the Moscow Interbank Center. Any other operations with equity securities cause problems with obtaining a license of a professional stock market participant.
To maintain liquidity in the government securities market, the Bank of Russia uses “REPO transactions”. The Bank of Russia may provide funds to the primary dealer in the securities market to close a short open position (i.e. when liabilities are greater than claims) in exchange for government securities. The dealer assumes the obligation to repurchase the same securities after a certain period of time, but at a different price. The term of the REPO transaction is fixed and is 2 days. The repo market is a fairly effective short-term instrument of the monetary policy of the Bank of Russia and one of the indirect instruments for maintaining the liquidity of the government securities market.
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State management of the market economy presupposes guaranteed support by the Central Bank of Russia of the activities of commercial banks. This is due to the fact that the latter are the working link of the monetary system, directly organizing credit relations in the national economy in the real sector of the economy.
Let's consider the main tools by which the Central Bank conducts its policy on the open market. These include, first of all, a change in the refinancing rate, a change in the norms of required reserves, operations in the open market with securities and foreign currency, as well as some measures of a tough administrative nature.
If we talk about refinancing, then refinancing means lending by the Central Bank of Russia to banks and credit institutions to regulate the liquidity of the banking system.
The forms, procedure, terms, conditions and limits of refinancing are established by the Bank of Russia. Federal Law of the Russian Federation "On Banks and banking"Dated 03.02.1996.
The refinancing rate is an instrument of monetary regulation, with the help of which the Central Bank influences the rates of the interbank market, as well as the rates on deposits of legal and individuals and loans provided to them by credit institutions.
The limit for open market operations is approved by the Board of Directors.
Open market operations differ depending on:
- - the terms of the transaction: purchase and sale for cash or purchase for a period with a mandatory return sale - reverse operations;
- - objects of transactions: operations with government or private securities;
- - urgency of the transaction: short-term (up to 3 months), long-term (up to 1 year or more) operations with securities;
- - areas of operations: only in the banking sector of the securities market or in the non-banking sector of the market;
- - method of setting rates: determined either by the Central Bank or the market.
For the first time, operations on the open market began to be actively used in the USA, Canada and the UK due to the presence of a developed securities market in these countries. Later, this method of credit regulation was widely used in Western Europe.
According to the form of conducting market transactions of the Central Bank with securities can be direct or reverse. A direct transaction is a regular buy or sell. The reverse operation consists in the purchase and sale of securities with the obligatory execution of a reverse transaction at a predetermined rate. The flexibility of reverse operations, the softer effect of their impact, make this regulatory tool popular. Thus, the share of reverse operations of the Central Banks of the leading industrialized countries in the open market reaches from 82 to 99.6%. If you look closely, you can see that, in essence, these operations are similar to refinancing secured by securities. The Central Bank offers commercial banks to sell them securities on terms determined on the basis of auction (competitive) trading, with the obligation to sell them back in 4-8 weeks. Moreover, interest payments on these securities during the period they are in the ownership of the Central Bank will belong to commercial banks.
Thus, open market operations involve more flexible regulation, since the volume of purchase of securities, as well as the interest rate used in this case, can change daily in accordance with the direction of the Central Bank's policy. Commercial banks, taking into account the specified feature of this method, should carefully monitor their financial position, while avoiding deterioration of liquidity.
In fact, the Central Bank of Russia acts as a service agent for the Ministry of Finance of the Russian Federation, as well as a regulatory and control body.
The Central Bank of Russia provides the "organizational" side of the functioning of the market for government short-term bonds (GKO): holds auctions, redemption, preparation required documents, transfer of the necessary funds to the account of the Ministry of Finance of the Russian Federation. In addition, he actively participates in the work of the GKO market as a dealer, which makes it possible to exert a targeted economic impact on the market, depending on the events that occur directly in his presence and around him, and in accordance with the current policy of the CBR.
At the same time, the Bank of Russia does not aim to extract profit from market operations. The Central Bank is focused on maintaining a certain level of some indicators of the GKO market, which determines the attractiveness of the GKO market for investors.
The fundamental goal of the Central Bank's open market operations is to help the Russian economy achieve an overall production level characterized by full employment and price stability.
The Central Bank, using the support of the state, is able to provide payment system powerful means of telecommunications required for settlements by market participants. The central bank is in a position to register all payment transactions occurring between banks, and to carry out a high-quality offset of mutual obligations of banks.
The Central Bank pursues a discount rate policy (sometimes called a discount policy), acting as the lender of last resort. It presents loans the most stable in financially banks experiencing temporary difficulties. The Federal Reserve System (FRS) sometimes provides long-term lending on special terms. These can be loans to small banks to meet their seasonal needs for funds... Sometimes loans are also provided to banks in difficult financial situations and need help to clean up their balance sheets.
Bank of Russia interest rates represent minimum rates, for which the Bank of Russia conducts its operations.
The Bank of Russia can set one or several interest rates for various types of transactions or conduct interest rate policy without fixing the interest rate.
The Bank of Russia uses interest rate policy to influence market interest rates in order to strengthen the ruble (Article 37). Federal Law on The central bank RF (Bank of Russia) (as amended by Federal Laws dated 26.04.95 No. 65-FZ, dated 27.12.95 No. 210-FZ, dated 27.12.95 No. 214-FZ, dated 20.06.96 No. 80-FZ, dated 27.02. 97 No. 45-FZ).
By exercising macroeconomic supervision over the functioning of the banking system as a whole, as well as overseeing the activities of each bank separately, the CBR can promptly take preventive measures to stabilize financial situation payment services market participants and reorganize one or another problem bank in order to prevent the rupture of the links of the settlement chain due to the bankruptcy or illiquidity of its participants.
The Central Bank of the Russian Federation considers the main task of monetary policy in the open market to be to reduce inflation while maintaining and possibly accelerating GDP growth, while simultaneously creating prerequisites for reducing unemployment and increasing real incomes of the population.
Keywords: OPEN MARKET OPERATIONS; LIQUIDITY; BANK OF RUSSIA; KEY RATE; AUCTIONS; OPERATIONS ON THE OPEN MARKET; THE LIQUIDITY; THE BANK OF RUSSIA; KEY RATE; AUCTIONS.Annotation: The article examines operations related to the operations of the Bank of Russia in the open market, analyzes data on operations in the open market conducted by the Bank of Russia in 2013-2016.
Operations on the open market are part of the mechanism for regulating the liquidity of the banking system, which the central bank implements, guided by the objectives of monetary policy, as well as considerations to ensure the stability of the banking system.
By economic essence open market operations represent operations of a credit nature to provide liquidity to banks, as well as deposit operations to withdraw banks' liquidity, which are carried out by the decision of the Central Bank on the same credit institutions for all admitted to operations.
In the Russian Federation, the main government agency in charge of monetary policy is the Central Bank of the Russian Federation (Bank of Russia), whose policy is carried out in the inflation targeting regime and is aimed at reducing inflation to 4% and further maintaining it close to this level.
For this, a wide range of monetary regulation instruments is used, enshrined in Federal law"On the Central Bank of the Russian Federation (Bank of Russia)", but actually in modern conditions The main mechanism of the Bank of Russia's influence on the economy is a change in the key rate, which, in turn, is determined based on the results of auctions held on the terms of open market transactions.
These include:
- main auction operations - auctions for the provision / withdrawal of liquidity on REPO terms or deposit auctions for a period of 1 week;
- “fine tuning” operations - REPO auctions for a period of 1 to 6 days, SWAP auctions for a period of 1 to 2 days, as well as deposit auctions for a period of 1 to 6 days
- additional auction operations to provide liquidity with terms from 1 week to 36 months, conducted in the form of auctions for the provision of loans secured by various assets.
The dynamics of the volumes of Bank of Russia REPO auctions and the level of average rates based on the results of such auctions, which generally correspond to the level of the Bank of Russia key rate, are shown in Figure 1. period 2013-2015, which reflects the growing demand for liquidity from banks, the rates on these operations increased significantly (Fig. 1).
This, in our opinion, is due to the peculiarities of the emerging in Russia in 2015 economic situation... In connection with the beginning of a long-term fall in world prices for hydrocarbons, on the export of which largely depends economic development Russia, the pace has fallen economic growth, the situation in the real sector of the economy worsened, there was a large-scale devaluation of the ruble and an automatic surge in inflation. In 2014, economic sanctions were introduced against Russia, in particular, they blocked the access of enterprises and banks to external financing.
As a consequence, in banking system The Russian Federation, starting from the end of 2014, there were liquidity problems, which the Bank of Russia calls structural problems, attributing to the development of structural economic crisis, as well as with the restriction of access to external financing in connection with the imposition of sanctions. To solve these problems, the Bank of Russia increased the volume of liquidity support through REPO auctions (Fig. 1).
Subsequently, the volumes of liquidity provided to banks through open market operations and other Bank of Russia instruments decreased, rates on these operations remain at a relatively stable level, which, in our opinion, indicates the normalization of the liquidity situation in the banking sector.
Thus, in the Russian Federation, open market operations include auction operations conducted by the Bank of Russia: REPO and deposit operations with a maturity of 1 week; fine tuning operations; operations to provide loans secured by securities and other assets, and bank guarantees for longer periods. Among them, the main ones are auctions for placing liquidity on REPO terms, held once a week, and deposit auctions for withdrawing liquidity.
Based on the results of REPO auctions conducted on an open market conditions, it is determined key rate The Bank of Russia, the change of which is the main instrument of monetary regulation in the Russian Federation in modern conditions.
Analysis of data on open market operations carried out by the Bank of Russia in 2013-2016 showed that their volumes increased significantly in late 2014 - early 2015. in connection with the emergence of liquidity problems caused, in particular, by the deterioration of the macroeconomic situation in the Russian Federation during this period. After the Bank of Russia took measures to overcome this problem, the volume of operations on the open market returned to normal.
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