When the central bank buys securities from a commercial bank, it increases the amount on the reserve account of this bank and that bank can expand the volume of its operations (for example, with a required reserve ratio of 10%, the receipt of 10 thousand rubles in the reserve account allows you to increase the volume of operations by 100 thousand rubles).
If the Central Bank sells securities, then the process proceeds in the opposite way. Sales of securities on the open market are used to sterilization, i.e. excessive suction money supply.
In industrial developed countries open market operations have become the main instrument central bank due to the following factors:
1) government securities can be sold and bought in various quantities, and therefore have a significant impact on the money supply;
2) it becomes possible to effectively control the volume of operations;
3) due to the high liquidity of the government securities market, the speed of transactions on it is quite high.
Operations on the open market, depending on the terms of transactions, are divided into direct transactions (purchase and sale for cash) and futures transactions (purchase and sale for a period with a mandatory resale - REPO transactions). Objects of transactions - transactions with public or private securities. In direct transactions, the sale and purchase of securities is carried out with immediate delivery, and interest rates are set at auction.
REPO transactions are carried out on the terms of a repurchase agreement. At the same time, direct REPO transactions and reverse (or paired) REPO transactions are distinguished. Direct signify the purchase of securities central bank with the obligation of the dealer or commercial bank to buy them back through certain period. At the conclusion reverse repo transactions, the central bank sells securities and assumes the obligation to buy them back from a dealer or commercial bank after a certain period of time.
According to the goals of conducting open market operations, they are divided into dynamic and protective ones. Dynamic operations use direct transactions and are aimed at changing the level bank reserves and monetary base. Protective use REPO transactions and are carried out to adjust reserves in case of their unexpected deviations from a given level.
The purchase and sale of securities allows not only to control the amount of money in circulation, but also to change it in the required parameters.
3. Interest rate policy of the Central Bank. With the help of this tool, the central bank can influence the monetary base and liquidity of banks. For these purposes, the refinancing rate and the rate on credit and deposit operations of the Central Bank (discount rate) are used.
Refinancing rate is the rate at which the central bank lends to financially stable commercial banks. A change in the refinancing rate makes it possible to regulate the amount of money supply in circulation quite flexibly1. If the refinancing rate rises, then the volume of borrowings by commercial banks from the Central Bank is reduced, as a result of which the issuance of loans by commercial banks may decrease.
In addition, getting a more expensive loan, commercial banks increase their interest rates on loans. Thus, the volume of loans issued is reduced and the money supply in the economy is reduced. With an increase in the refinancing rate, the reverse process occurs.
Scope of use of the central bank refinancing rate:
Serves as a benchmark for market interest rates on deposits and loans. This is a kind of indicator of the intentions of the Central Bank;
It is used in income taxation of citizens when calculating income tax With material gain, formed by loan agreements, upon payment insurance compensation, when calculating interest income by deposit; it is also used in the taxation of profits;
Taken into account when calculating the rate of securities;
It is a tool for regulating floating exchange rate;
Used as a central bank inflation forecast.
Thus, a change in the refinancing rate makes it possible to flexibly regulate the volume of money supply in circulation.
At the same time, a change in the refinancing rate may have ambiguous economic consequences. For example, a significant increase in the refinancing rate is often used as an anti-inflationary measure. At the same time, an increase in the refinancing rate with a budget deficit increases state debt due to growing interest payments on government securities, which in the long run can unleash the inflationary process (especially if the budget deficit is significant).
Official discount rate(discount rate) is a fee charged by the Central Bank when buying securities from commercial banks before the maturity date for them. This is the so-called procedure for accounting for securities of the Central Bank, called the accounting, or discount, window, a kind of lending to banks secured by securities.
The discount rate is a kind of benchmark for setting the interbank interest rate and the interest rate at which commercial banks issue loans to the non-banking sector - households and firms.
Commercial banks resort to loans through the accounting window of the Central Bank in two cases. First, to replenish required reserves(if the discount rate of the Central Bank is lower than the interest rate in the interbank market), and secondly, in order to make a profit (if the difference between the discount rate and the rate loan interest will be large enough).
If the central bank wants to increase money supply in the country, it lowers the discount rate. The demand of commercial banks for loans from the Central Bank is increasing. By providing cash loans to commercial banks, the Central Bank increases the reserves of borrowing banks by the corresponding amount (loans go to the reserve account of a commercial bank with the Central Bank), expanding the monetary base. Banks can use these reserves to make loans, thereby creating new money.
When the discount rate rises above the rate interbank market commercial banks reduce borrowing from the Central Bank, which reduces the money supply. This leads to an increase in the interest rate in the interbank market and increases the cost of credit. The higher the level of the official discount rate, the higher the cost of Central Bank refinancing loans, and hence the volume of loans that commercial banks can provide decreases. Accordingly, the money supply in circulation is also reduced.
However, a change in the discount rate cannot have a significant impact on the behavior of banks for a number of reasons:
The Central Bank is not in a position to force commercial banks to borrow from it and it is impossible to accurately calculate the increase or decrease in the money supply;
The discount rate is less mobile than the interbank market rate;
The volume of funds borrowed from the Central Bank in the total reserves of commercial banks is insignificant.
4. Monetary policy- this is a policy aimed at regulating the sphere of international settlements of the country and maintaining the course of its national currency. This tool can have a direct impact on the value money supply in the country.
The Central Bank usually uses two main forms of monetary policy: discount and motto.
Discount policy is based on a change in the discount rate (the discount rate, as already mentioned, affects the interest rates in the country) and performs two functions: internal and external.
The external function of the discount policy is aimed at attracting foreign capital and the appreciation of the national currency, as well as the regulation of the balance of payments. This function is implemented when the discount rate increases. The effectiveness of the external function of the discount policy depends on the inflow or outflow of foreign short-term capital. Banks take into account the difference in interest rates on national and world currency and credit markets. Getting more cheap credit in the country where the rates are lower, they place foreign currency in the market where the interest rates are higher.
Motto policy lies in the fact that the central bank, buying or selling foreign currencies (mottoes), acts in the right direction on the change in the exchange rate of the national currency. At the same time, the central bank uses foreign exchange interventions, which have a similar mechanism of action with operations on the open market. Foreign exchange interventions are buying and selling foreign exchange on the domestic market to increase or sterilize the money supply. At the same time, it becomes possible to correct fluctuations in the exchange rate of the national currency: the sale of dollars leads to an increase in the ruble exchange rate, and vice versa.
However, such a policy, with large violations in the balance of payments system, can lead to disastrous results - the depletion of the country's foreign exchange reserves, without preventing the depreciation of the national currency.
In this regard, the central bank uses a more flexible tool - currency swaps, which allow you to adjust the level of liquidity foreign exchange market without creating additional pressure on the exchange rate of the national currency. A currency swap is a form of transaction in which a currency is bought and sold on the terms of immediate delivery with a simultaneous reverse urgent exchange at an agreed rate. These transactions are used to replenish foreign exchange reserves and maintain the stability of the national currency.
5.2.1. The essence of government securities
Government securities are debentures the issuer (the state, most often represented by the treasury) to the acquirer of these obligations (the holder of government securities) that the issuer undertakes to repay the securities on time and in full, pay the interest due, if any follow from the agreement on the purchase of securities, as well as fulfill other obligations that are stipulated in the contract.
In the world, centralized issuance of securities is used as a tool state regulation economy: as a lever of influence on monetary circulation and control of the volume of money supply; and also as a means of non-emission coverage of the deficit of the state and local budgets, a way to attract Money enterprises and the population to solve certain specific problems. Government securities are traded in the national currency of the issuer.
The central bank helps the government determine the best time to issue bonds, their price, yield and other characteristics that make the issue attractive to investors, the best place to place bonds. In order to successfully cope with this task, the bank must have accurate and timely information about the state of the economy, the movement of credit resources, etc. Despite efforts to be as informed as possible, the bank is sometimes forced to make decisions before the statistics confirm the expected event. . Therefore, he conducts his own research, the results of which are usually published and are of great interest to scientists, economists, managers, employees of financial institutions.
5.2.2. Pricing Models for Government Securities
Analyzing the pricing mechanism for government securities, one should distinguish between elements that are predetermined government bodies, issuing securities, and those that are formed under the influence of the secondary market, which means that they reflect the market processes of the collision of supply and demand. Market elements This mechanism is not much different from the pricing models for currencies and securities. But the elements subject to state influence acquire specific features.
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The main features of pricing for government securities are laid down by their issuers at the stage of developing and accepting the conditions for issuing securities, determining the market space for their distribution and operation. If such a space is extremely narrow, the price of government securities is almost uniquely determined by such predetermined parameters as the initial offering price, redemption price, interest rate and premium. In this case, the price is tied to the date of sale of the security and may well be called assigned. However, the space of the secondary market, its zone of action is not limited, and the issuer is able to predetermine only the initial price of the initial placement and the final redemption price, while the intermediate prices during the entire period of the securities are set by the market, and not by the state bodies issuing them.
Government bond yield
There are two main types of value of government securities:
Face value - the price set by the issuer, with a certain coupon yield (yield);
market price- the price of paper on secondary market.
The return on a security is inversely proportional to its market value.
Example. The security was purchased from the issuer by bank A at a par value of 100 conventional units. Coupon yield (yield) is 3%. After 1 year, the state repays the debt to bank A 100 units and coupon income, which is 3 conventional units.
If bank A were to sell the paper to bank B for 95 units in the secondary market, then bank B, having redeemed the paper at face value, would receive 100 units - the principal amount of the debt and 3 units - coupon income. Thus, the income of bank B on the security was (100 - 95) + 3 = 8 units (in the example, the calculations are simplified compared to the calculations in the real market).
With an increase in the yield of bonds, which means a fall in their prices, there is an increased interest in investing money in this financial instrument (Fig. 5.2.1). To buy bonds, you need the national currency, i.e., the demand for the currency increases, which leads to an increase in the exchange rate of this currency. In this case, it is necessary to take into account not only the change in yield, but also to compare the yields of bonds different countries, since the most profitable bonds are of interest.
5.2.3. Operations of central banks in the open market
One of the most important funds regulation monetary circulation are operations on the open market, which consist in the sale or purchase by the Central Bank from commercial banks of government securities, banker's acceptances and other credit obligations at the market or pre-announced rate. In the case of a purchase, the Central Bank transfers the corresponding amounts to commercial banks, thereby increasing the balances in their reserve accounts. When selling, the Central Bank writes off the amounts from these accounts. In this way said operations are reflected in the status of the reserve position banking system and are used as a method of its regulation.
In Russia, open market operations are understood as the purchase and sale by the Central Bank of the Russian Federation of government securities that have a high degree of liquidity. Commercial banks are the main investors in the securities market, which expands the regulatory impact of the Central Bank of the Russian Federation on their lending capabilities.
Currently in the world economic practice It is open market operations that are the main means of regulating the money supply. This is primarily due to the unusually high flexibility of this tool, which allows you to influence the monetary situation in short-term periods, smooth out unwanted fluctuations in the money supply.
Stabilization credit monetary policy is realized as expansionist (expansion of the money supply) in the period economic downturn and as a restrictive one (restraint in the growth of the money supply or reduction in the money supply) during the period of "overheating" of the economic situation.
Expansionary monetary policy (Expansionary Policy, Easy Money Policy). It is carried out at the stage of economic recession and is aimed at stimulating it. It lies in the fact that the FED supplies banks with an abundance of cash resources that can be used for low-cost loans that expand consumer demand, as well as business investment. For this purpose, the FED buys government securities, thereby increasing bank financial resources; interest rates on bank loans decrease, the amount of loans issued and the amount of money in circulation grow, which ultimately leads to an increase in consumer demand.
Restrictive monetary policy (Contractionary Policy, Tight Money Policy). It is carried out at the top of the business cycle in order to prevent the overheating of the economy, which can lead to uncontrolled inflation and a severe downturn in activity, turning into a crisis. With timely action, FED seeks to limit growth early to ensure a smooth deceleration and soft decline. business cycle. To do this, the sale of government securities is carried out, as a result of which the volume of bank resources falls, interest rates on loans increase, since an alternative investment bank funds gives a high return (interest rates on government bonds high); the volume of loans falls due to their high cost, leading to a slowdown in business activity, increasing unemployment and dampening consumer demand.
5.2.4. Types of government securities
Government securities are usually divided into marketable and non-marketable, depending on whether they are traded on the free market (primary and secondary) or are not included in secondary circulation on stock exchanges and are freely returned to the issuer before their expiration date. The bulk of government securities are marketable.
The following are among the government securities accepted in world practice.
Treasury bills are short-term government obligations, usually redeemed within one year from the time of their issue and sold at a discount, that is, at a price below the face value at which they are redeemed (either sold at par, and issued at a price above par). In the US, such securities are called Treasury Bill (T-Bill, bills).
Medium-term treasury bills, treasury bills - treasury bills with maturities of one to five years, usually issued with a fixed interest payment.
USA - 10-year Treasury Note (10-year treasury notes).
UK - Gilts. Government bonds, known as gilt-edged securities.
Japan - JGB (Japanese Government Bonds) - Japanese government bonds: The Bank of Japan buys 10- and 20-year JGBs every month to add liquidity to the monetary system.
Eurozone - The German 10-year Bund is commonly used as a benchmark. The FOREX market usually checks against 10-year tickets, comparing their number with their counterparts abroad, namely, for the euro - the German 10-year Bund, for the Japanese yen - 10-year JGB and the British pound - 10-year Gilt. The presence of a spread (difference in yield) between 10-year US Treasury notes and non-US bonds affects the exchange rate. More US Treasury Notes (increase in yield) generally benefits the US dollar against foreign currencies.
Long-term treasury bills - with a maturity of up to ten years or more; coupons are paid on them. Upon the expiration of the term, the holders of such government securities have the right to receive their value in cash or refinance into other securities. In some cases long term duties can be repaid at the provisional date, i.e. several years before the official maturity date. In the USA - Treasury-Bonds (T-Bond, bonds). This is the most important indicator of inflation expectations in the markets.
Markets are more likely to use quantity (rather than price) when we are talking about bond levels. As with all bonds, the amount of 30-year Treasury bills is inversely proportional to price. There is no clear correlation between a long bond and the US dollar. But the following attitude usually remains - a fall in the price of a bond (growth in quantity) due to inflationary anxiety can "crush" the dollar. The rise may be the result of strong economic data. However, as the supply of 30-year bonds began to decline due to the actions of the Treasury to reimburse them (debts are bought back), the role of the 30-year bond as a benchmark is gradually being transferred to its 10-year version. As a benchmark asset, long bonds move capital flows for global reasons. Financial or political turmoil in Third World markets generates hot interest in US Treasuries due to their safe nature, thus helping the dollar.
Eurobond (Eurobonds).
A bond issued outside the issuer's country of origin, usually by its overseas affiliates. These bonds do not have to be traded in Europe, although their main market is in London. The denomination of Eurobonds is set in the currency of another country deposited in the country of issue, so there are Eurodollar and Euroyen bonds.
- A bond offered for sale after the issue simultaneously to investors from different countries.
- A bond guaranteed by an international syndicate.
The credit rating expresses the opinion of the rating company regarding the ability and readiness of the issuer to fulfill its obligations in a timely manner and in full. financial obligations. Credit ratings can be assigned to an issuer (sovereign government, regional and local authorities, corporations, financial institutions, infrastructure, insurance companies, managed funds) or a separate debt obligation. Since government securities are backed by the country's property, long-term credit ratings governments can be attributed to the rating of government securities.
A recommendation as to whether to buy, sell or hold certain securities,
opinion about the market price of debt obligations and about investment attractiveness issuer for a particular investor.
Moody's (http://www.moody's.com);
Standard & Poors (http://www.sandp.ru);
Fitch Ibca. (http://www.fitchibca.com).
The long-term rating evaluates the issuer's ability to fulfill its debt obligations in a timely manner. Long-term ratings range from the highest category - "AAA" to the lowest - "D". Ratings ranging from "AA" to "CCC" may be supplemented by plus (+) or minus (-) signs indicating intermediate rating categories in relation to the main categories.
"Positive" - the rating may increase.
"Negative" - the rating may go down.
"Stable" - change is unlikely.
“Developing” – the rating may be upgraded or downgraded.
Content
The Central Bank of the Russian Federation performs its functions through active and passive operations. The Bank of Russia has the right to carry out the following Bank operations and deals:
- provide loans for a period not exceeding one year secured by securities and other assets, unless otherwise provided by federal law;
- buy and sell government securities, own bonds, certificates of deposit of commercial banks, foreign currency, as well as payment documents and obligations denominated in foreign currency issued by Russian and foreign banks;
- buy, sell, store precious metals and other types of currency values;
- carry out cash and deposit operations accept securities and other assets for storage and management;
- issue guarantees and bank guarantees;
- carry out transactions with financial instruments used to manage banking risks;
- open accounts in Russian and foreign banks on the territory of the Russian Federation and the territories of foreign states;
- issue checks and bills in any currency;
- carry out other banking operations and transactions on its own behalf in accordance with the circulation of money accepted in international banking practice.
Bank of Russia has no right:
- carry out transactions with legal entities who do not have a license to carry out banking operations;
- acquire shares (stakes) of credit and other organizations;
- carry out real estate transactions;
- engage in trade and production activities;
- extend loans.
Passive and active operations
Two groups of operations of the Bank of Russia can be distinguished - passive and active (Table 3.2).
Passive Operations These are operations for the formation of banking resources. The liabilities of the Bank of Russia include:
- issue of banknotes and coins (cash in circulation);
- deposits (funds on accounts);
- liabilities on loans received;
- issue of own bonds;
- capital and reserves.
An important source of resources of the Bank of Russia is the issue of cash. Banknotes and coins are unconditional obligations of the Bank of Russia, which are secured by all its assets. Accordingly, their emission is carried out through three channels: lending to banks, lending to the state and buying foreign currency.
Deposits are attracted for a period of one day to three months and on demand.
The Bank of Russia may receive loans from international financial and credit organizations.
Active Operations- These are operations for the placement of banking resources. The assets of the Bank of Russia include: precious metals, foreign currency, loans, investments in securities, fixed assets.
For operations with precious metals and foreign currency accounts for the largest share in the asset.
Operations with foreign currency conducted by the Central Bank provide for a balanced implementation of two goals: the implementation of direct monetary policy(carrying out interest rate policy or regulation of the money supply to fight inflation) and monetary policy (exchange rate regulation).
The increase in interest rates in the country, other things being equal, stimulates the inflow of capital into national economy, increasing the demand for its national currency and, accordingly, contributing to the appreciation of this currency. Lowering interest rates can have the opposite effect.
Investments in securities may be made by the Bank of Russia for various purposes.
First, the purchase of obligations of the Government of Russia with their initial placement serves as a source of coverage for intra-annual gaps between current income and expenditures or deficits federal budget(if it is provided by the law on the federal budget).
Secondly, the purchase by the Bank of Russia of securities on the secondary market, including those with an obligation to resell (repo), can be carried out to replenish bank liquidity in the course of conducting monetary policy.
Open market operations are one of the most efficient and flexible instruments of the Central Bank's monetary policy, providing an effective impact on the level of liquidity of commercial banks and the dynamics of the money supply. The frequency and scope of operations are determined by the Central Bank based on the desired predicted effect, which makes this tool flexible and efficient in application, allowing to achieve the desired predicted effect in a short time.
Open market mechanism quite simple, which makes it easy to use. Open market operations conducted by central banks differ depending on the objects of transactions (transactions with public or private securities); urgency of transactions, conditions of transactions (direct transactions and REPO transactions), spheres of execution (only the banking sector or in combination with the non-banking sector of the securities market); subjects of initiative in carrying out operations (the Central Bank or money market participants).
Depending on the terms of transactions, operations on the open market are divided into direct and REPO. Historically, the first form of operations were direct deals, i.e. transactions of the Central Bank for the purchase or sale of securities (from its portfolio), which are usually carried out on a cash "cash" basis, involving full settlement during the day of the transaction or the next day.
As of July 1, 2007, fixed assets (buildings, equipment, including computers) accounted for approximately 0.5% of all assets of the Bank of Russia.
Currency interventions
In order to implement monetary and exchange rate policy Central banks conduct operations with foreign currencies, of which the most traditional are the operations of the Central Bank for the purchase and sale of foreign currency in the domestic foreign exchange market in order to influence the national currency rate and the total demand and supply of money - conversion operations, or foreign exchange interventions. These operations are aimed at preventing sharp fluctuations exchange rate of the national currency in the domestic foreign exchange market, counteracting speculative moods of market participants, building up gold and foreign exchange reserves, preventing an excessive and unjustified increase in the money supply, forming rational expectations regarding inflation and the exchange rate.
In Russia, the importance of these operations is determined by the fact that the exchange rate is currently one of the main inflation-forming factors, stability in the foreign exchange market is supported by positive influence to achieve inflation targets.
AT last years foreign exchange interventions carried out by the Bank of Russia objectively led mainly to an increase in gold and foreign exchange reserves. Replenishment of gold and foreign exchange reserves occurs during periods when oil prices and, accordingly, the revenues of exporters remain at high level. At the same time, banks sell foreign currency in connection with the need to replenish ruble liquidity (for example, in order to pay taxes, both their own and clients'). On the other hand, the Bank of Russia seeks to contain the strengthening of the real effective exchange rate of the ruble within the given limits (i.e., to prevent excessive appreciation of the ruble against the dual-currency basket) and, to this end, conducts operations to buy US dollars and euros in the domestic foreign exchange market, thereby replenishing gold and foreign exchange reserves. At the same time, the purchase by the Bank of Russia of foreign currency in the domestic market becomes the main source of growth in the money supply and the increase in the monetary base, which, in an unfavorable situation, can intensify inflationary processes.
Due to the significant impact external factors On the Russian economy, situations of a sharp fall in the exchange rate of the ruble against major currencies periodically arise. In this case, the Bank of Russia, in order to stabilize the situation in the domestic foreign exchange market and maintain the ruble exchange rate, sells foreign currency from gold and foreign exchange reserves.
For monetary policy purposes, central banks may conduct other types of currency transactions in addition to direct operations for the purchase and sale of foreign currency in the domestic foreign exchange market, for example, operations with securities denominated in foreign currency, including direct operations for the purchase and sale of securities or REPO operations. The results of such operations on money market may be similar to conversion.
The open market is the operations of the Central Bank for the purchase and sale of government securities in the secondary market. Purchases on the open market are paid for by the Central Bank by increasing the reserve account of the seller's bank. Total cash reserves banking system increase, which, in turn, leads to an increase in the money supply. The sale of open market securities by the Central Bank will have the opposite effect: the total reserves of banks decrease and, other things being equal, the money supply decreases. Since the Central Bank is the largest open market dealer, an increase in the volume of purchase and sale transactions will lead to a change in the price and yield of securities. Therefore, the Central Bank can influence interest rates in this way. This is the most best tool However, its effectiveness is reduced by the fact that the expectations of market participants are not entirely predictable. Advantages this method:The central bank can control the volume of transactions;
transactions are quite accurate, it is possible to change bank reserves by any given amount;
transactions are reversible, since any error can be corrected by a reverse transaction;
the market is liquid and the speed of transactions is high and does not depend on administrative delays.
In the open market, central banks use two main types of operations:
direct transactions - purchase and sale of securities with immediate delivery. Interest rates are set at the auction. The buyer becomes the owner of securities that do not have a maturity date;
repo transactions are conducted on the terms of a repurchase agreement. Such transactions are convenient because the repayment terms can vary.
The types of open market operations are divided into:
dynamic operations - aimed at changing the level of bank reserves and the monetary base. They are of a permanent nature, and direct transactions are used in their implementation;
protective operations - are carried out to adjust reserves in case of their unexpected deviations from a given level, i.e., they are aimed at maintaining stability financial system and bank reserves. Repo transactions are used for such transactions.
The use of open market operations depends on the level of development, the institutional environment and the degree of liquidity of the government securities market. As an analogue of operations on the open market, the Bank of Russia also uses foreign exchange interventions.
Foreign exchange intervention - buying and selling foreign currency on the domestic market to increase or sterilize the money supply. They affect the exchange rate of the ruble against the dollar. The sale of dollars by the Central Bank will lead to an increase in the exchange rate of the ruble, the purchase - to its fall. If the Central Bank conducts foreign exchange interventions to correct short-term fluctuations in the exchange rate, then it loses control over bank reserves and, accordingly, over the money supply. In addition to foreign exchange interventions, the Bank of Russia plans to use a more flexible instrument - currency swaps.
Currency swaps- these are operations of buying and selling currency on the terms of immediate delivery with simultaneous reverse urgent deal. They allow you to adjust the level of liquidity of the foreign exchange market without creating additional pressure on the ruble exchange rate.
What is bank refinancing?
Bank refinancing is an instrument of monetary policy, when the Central Bank provides a loan to a bank, the account of this bank in the Central Bank is credited. The passive part of the balance sheet of the Central Bank is increasing, and the total reserves in the banking system are increasing. The assets of the Central Bank increase by the amount of the loan. As a result, an increase in refinancing increases the volume of borrowed reserves in the banking system, the monetary base and the money supply, while a decrease decreases it.
The central bank can influence the amount of refinancing in two ways:
affecting the interest rate on loans;
by influencing the amount of loans at a given interest rate through the refinancing policy.
The refinancing policy affects the volume of lending to banks through the mechanism for issuing loans and involves the Central Bank determining the goals, forms, conditions and terms of lending. Credit refinancing also used as a stabilization tool
banking system. This is the most effective way to provide additional reserves and, accordingly, liquidity to banks during crisis shocks.
The traditional form of refinancing is the recalculation of bills by the Central Bank, the meaning of which is that the Central Bank buys bills already discounted by banks.
The volume of refinancing depends on the level of the refinancing rate (the cost of loans from the Central Bank). But still, the refinancing rate is usually considered as an indicator of the intentions of the Central Bank. By changing the refinancing rate, the Central Bank announces its intentions regarding monetary policy.
Refinancing policy has less direct impact on monetary system. It is possible to directly determine the required change in loan reserves, but it is not known by how much the refinancing rate needs to be changed in order for banks to apply for loans from the Central Bank. Banks' costs of using the refinancing rate are high, and changing the refinancing rate turns out to be an inefficient tool due to the ambiguous impact on financial markets.
The operations of the central bank in the open market are currently the main instrument of monetary policy in world economic practice. The central bank sells or buys securities at a predetermined rate, including government securities that form domestic debt countries. This tool is considered the most flexible tool for regulating credit investments and liquidity of commercial banks.
The operations of the central bank in the open market have a direct impact on the amount of free resources available to commercial banks, which stimulates either a reduction or expansion of the volume of credit investments in the economy, while simultaneously affecting the liquidity of banks, respectively reducing or increasing it. Such influence is carried out by changing the price of purchase from commercial banks or sale of securities by the central bank. With a strict restrictive policy, which should result in an outflow of credit resources from the loan market, the central bank reduces the sale price or increases the purchase price, thereby increasing or decreasing its deviation from the market rate.
If the central bank buys securities from commercial banks, it transfers money to their correspondent accounts; thus, the credit possibilities of banks increase. They begin to issue loans, which in the form of non-cash real money enter the sphere of monetary circulation, and, if necessary, are transformed into cash. If the central bank sells securities, then commercial banks pay for such a purchase from their correspondent accounts, thereby reducing their credit opportunities associated with the issue of money.
Open market operations are carried out by the central bank, usually in cooperation with a group of large banks and other financial and credit institutions.
The scheme for carrying out these operations is as follows:
Let us assume that there is an excess of money in circulation in the money market and the central bank sets the task of limiting or eliminating this surplus. In this case, the central bank begins to actively offer government securities on the open market to banks or the public, who buy government securities through special dealers. As the supply of government securities increases, their market price falls, and interest rates on them grow, respectively, their attractiveness to buyers increases. The population (through dealers) and banks are beginning to actively buy government securities, which ultimately leads to a reduction in bank reserves. The reduction in the volume of bank reserves, in turn, leads to a decrease in the money supply in a proportion equal to the bank multiplier. At the same time, the interest rate rises.
Suppose now that there is a shortage of money in circulation in the money market. In this case, the central bank pursues a policy aimed at expanding the money supply, namely, the central bank begins to buy government securities from the bank and the population at a favorable rate for them. Thus, the central bank increases the demand for government securities. As a result, their market price rises and the interest rate on them rises, which makes Treasury securities unattractive to their holders. The population and the bank begin to actively sell government securities, which ultimately leads to an increase in bank reserves and (taking into account the multiplier effect) money supply. At the same time, the interest rate falls.
Again, the unpredictability of the results of monetary policy can be noted due to the fact that the open market is a financial market. An increase in sales on the open market leads to an increase in the supply of financial assets, and hence to an increase in interest rates. In turn, an increase in interest rates will be reflected in an increase in the multiplier, which will partially offset the effect of a decrease in the monetary base. Conversely, open market purchases can lead to an increase in demand for financial assets, lower interest rates and the multiplier.
Despite the temporary cessation of the functioning of the government securities market (GKO OFZ), the Bank of Russia does not exclude from the range of monetary policy instruments such an instrument for regulating the liquidity of the banking system as open market operations. Under compression financial markets and exacerbation of the liquidity problem, the Bank of Russia in September 1998 developed an application on the introduction of bonds of the Bank of Russia (OBR) into circulation and began operations with them, including the Bank of Russia provided banks with the opportunity to use these securities as collateral for pawnshop, intraday loans and credits overnight, as well as conducting REPO transactions with them. At present, the experience of issuing OBR has demonstrated the still weak impact of this instrument on bank liquidity.
The considered policy instruments are usually used by the central bank in a complex in accordance with the purpose of monetary policy. The optimal combination of monetary policy instruments depends on the stage of development and structure of financial markets, the role of the central bank in the country's economy. For example, the policy of discount rates (refinancing rates), taking the second place in importance after the policy of the central bank in the open market, is usually carried out in combination with the operations of the central bank in the open market. Thus, when selling government securities on the open market in order to reduce the money supply, the central bank sets a high discount rate (higher than the yield on securities), which speeds up the process of selling government securities by commercial banks, since it becomes unprofitable for them to replenish reserves with loans from the central bank, and improves the efficiency of open market operations. Conversely, when the central bank purchases government securities on the open market, it sharply lowers the discount rate (below the yield on securities). In this situation, it is beneficial for commercial banks to borrow reserves from the central bank and use the available funds to purchase more profitable government securities. The expansionary policy of the central bank becomes more effective.
