Types of operations on the open market. Purchase and sale of government bonds by a central bank

The convenience of using OBR transactions for credit institutions is the possibility of early sale of securities in the secondary market, as well as the possibility of using them as collateral both for interbank lending transactions and for operations to provide liquidity of the Bank of Russia.

OBRs are included in the Lombard List of the Bank of Russia and are accepted as collateral for loans of the Bank of Russia secured by a pledge (blocking) of securities, and direct REPO operations of the Bank of Russia.

OBRs are issued in the form of zero-coupon discount bonds, which provides for the sale of bonds to holders at a price lower than par, with subsequent redemption of bonds at par in the absence of coupon payments to holders during the circulation period of the issue.

The right to issue by the Bank of Russia its own bonds in order to implement monetary policy is established by Art. 44 of the Federal Law of 10.07.2002 No. 86-FZ "On the Central Bank of the Russian Federation (Bank of Russia)". OBR is issued in accordance with Art. 27.5-1 of the Federal Law of 22.04.1996 No. 39-FZ "On the Securities Market" and Regulation of the Bank of Russia of 29.03.2006 No. 284-P "On the Procedure for Issuing Bank of Russia Bonds".

To use this tool, the country needs a developed securities market. By buying and selling securities, the Central Bank affects the bank's reserves, the interest rate, and therefore the money supply.

To increase the money supply, he begins to buy securities from commercial banks and the public, which allows commercial banks to increase reserves, as well as grant loans and increase the supply of money (“cheap money” policy).

If the amount of money in the country needs to be reduced, the Central Bank sells government securities, which leads to a reduction in lending operations and money supply (“cheap money” policy).

Open market operations are the most important, operational means of influence of the Central Bank on the monetary sphere.

Depending on the state of the country's economy, the Central Bank can choose the following types of monetary policy and certain goals. In conditions of inflation, the policy is pursued “ expensive money”Aimed at reducing the money supply: 1) raising the discount rate, 2) increasing the required reserve ratio, 3) selling government securities on the open market. The “expensive money” policy is the main method of anti-inflationary regulation.

During periods of production decline, a “cheap money” policy is implemented to stimulate business activity. It consists in expanding the scale of lending, weakening control over the growth of the money supply, and increasing the supply of money. To do this, the central bank:
1) reduces the discount rate;
2) reduces the reserve rate;
3) buys government securities.

Banks: their types and functions.

Banks are special economic institutions, their types are the centers of credit relations. Their main function is to concentrate funds and lend them. Banks also accumulate cash income and savings of the population, funds of state, public and other organizations. By themselves, these amounts are intended to be spent as a purchasing or means of payment. Meanwhile, when they fall into the hands of businessmen, they are used to make a profit.

Banks also issue credit instruments of circulation - value signs that play the role of money in trade and payments (cash, banknotes).

Banks perform their functions in two interrelated types of operations: passive - operations for the formation of bank resources and active - operations for their placement and use (Fig. 12.2.).

Banks' funds are made up of their own capital (they form, as a rule, an insignificant part of all funds: in the USA, for example, 8%) and deposits - customer deposits. Deposits are divided into urgent (investments for a predetermined period and not subject to withdrawal before it occurs) and demand (deposits on current accounts, which the bank is obliged to issue at the first request of the depositor).

Figure 12.2. Bank functions

Active operations include a variety of loans: promissory notes, stock, commodity, blank. The most common is the accounting of bills. A bank buys a bill from an entrepreneur if he seeks to convert it into money before the due date. When cash is issued, a discount interest is deducted from the amount indicated on the bill of exchange - a fee for providing the amount of money. At the due date for payment of the promissory note, the bank presents it for payment to the person who issued the promissory note. The value of the discount rate can vary greatly. Thus, the highest discount rate of a British bank from November 15, 1979 to July 3, 1980 was 17%. The lowest was at 2% from October 26, 1939 to November 7, 1951.

Banks lead stock transactions- give loans secured by securities - stocks, bonds, mortgages, etc., and also buy such securities. Sub-commodity loans are provided against the security of products in warehouses, in transit, in trade. If the loans are not repaid on time, then the pledged securities and inventories become the property of the banks. The largest entrepreneurs, whose solvency is beyond doubt, are provided with a blank loan: the loan is issued without any security.

In addition to passive-active operations and settlements, banks are engaged in trade and commission activities - they buy and sell gold, exchange national currency for foreign, place loans, sell stocks and bonds, etc.

Depending on the nature of the functions and operations performed, banks are divided into three main types: central, commercial and specialized (Fig. 12.3.).

Figure 12.3. Types of banks.

Not a single credit institution is one hundred percent insured against unplanned financial losses, therefore, in the course of its functioning and regulation banking risk, the financial institution should assign an important role to the formation of the bank's reserves.

In order to ensure its financial reliability, the bank is obliged to create various kinds of reserves to cover possible losses, the procedure for the formation and use of which is established in most cases by the Bank of Russia and legislative acts. The minimum size of the bank's reserves is determined By the Central Bank of the Russian Federation... The amount of deductions to the bank's reserves from profit before tax is established federal laws about taxes.

Banking multiplier is the process of increasing (multiplying) money in deposit accounts of commercial banks during the period of their movement from one commercial bank to another.

The bank multiplier characterizes the animation process from the perspective of the subjects of the animation. Here the answer is given to the question: who multiplies money? This process is carried out by commercial banks. One commercial bank cannot multiply money, the system of commercial banks multiplies it.

Operations for the purchase / sale of securities on the open market are used in the practice of most central banks. These operations can be one of the main instruments for regulating bank liquidity on a daily basis (for example, in the USA, Canada and Australia), or be used as an anti-crisis tool to make additional injections of funds into the banking sector and / or influence longer-term yields in the government segment. and corporate bonds (in particular, the Bank of England, the Bank of Japan, the US Federal Reserve).

In the practice of the Bank of Russia, operations to buy / sell securities on the open market are used on a relatively small scale as an additional instrument for regulating bank liquidity. The main factor that reduces the potential for using this instrument is the relative narrowness and low liquidity of the Russian government securities market. In addition, during the period of the banking liquidity surplus, the use of this instrument is limited by the relatively small size of the Bank of Russia's own securities portfolio.

According to the legislation, the Bank of Russia can buy / sell both government and corporate debt securities on the market (shares - only within the framework of REPO transactions). At the same time, the purchase of government securities by the Bank of Russia can only be carried out in the secondary market (in order to limit the possibilities of direct emission financing of the budget).

In the practice of the Bank of Russia, purchase / sale corporate securities were used only within the framework of REPO transactions, or in the sale of securities received as collateral for REPO transactions, in case of improper performance by counterparties of their obligations under the second part of the transaction.

Direct buy / sell operations state securities without obligations to resell / repurchase are used by the Bank of Russia on an irregular basis.

Transactions on the purchase / sale of government securities in the secondary market can be carried out both through the government securities section of the MICEX CJSC, and on over-the-counter market... Only Russian credit institutions can participate in these operations.

OPERATIONS BY CENTRAL BANKS IN THE OPEN SECURITIES MARKET

S. R. MOISEEV

Moscow State University of Economics,

statistics and informatics

In contrast to reserve requirements, open market operations (OOP) are a highly flexible instrument of monetary policy, they are used on a voluntary basis, rather than on a coercive basis. OOPs can be conducted with any frequency and volume of assets, which makes them an effective means of managing the money supply and liquidity of the banking sector. In addition, OOPs are a good way to encourage competition in the financial system.

INTRODUCTION TO OPEN MARKET OPERATIONS

Open securities market operations include the purchase and sale of securities in order to increase or decrease the amount of funds at the disposal of financial institutions. First of all, OOPs affect bank reserves, as well as through the multiplier effect they affect the supply of credit and economic activity generally. OOPs can be conducted both in the primary market (through securities issues) and in the secondary market. In the primary market, transactions are carried out when financial markets are not yet sufficiently developed. Gradually, with the formation and liberalization of the financial system, the main emphasis in OOP is shifted to the secondary market, which provides more flexibility for the central bank. The object of the OOP is marketable securities such as debt obligations of the state treasury (ministry of finance), public corporations, major national corporations and banks.

OOP uses a variety of technical procedures to provide a variety of classifications:

Under the terms of transactions (direct transaction or purchase and sale for a period with an obligation to repurchase on pre-agreed terms);

By objects of transactions (operations with government or private securities);

By the urgency of transactions (short-, medium- and long-term);

By counterparties (banks, non-banking institutions, the financial sector in general);

By fixing the interest rate (by the monetary authorities or the market);

By fixing the OOP volume (by the monetary authorities or the market);

At the initiative of the conclusion of a transaction (monetary authorities or the market).

Open market operations are the main instrument of monetary policy in industrialized countries and are now becoming increasingly important for developing countries and economies in transition. OOPs allow central banks, on their own initiative, to enter into transactions, that is, to be more flexible in the timing and volume of monetary transactions. In addition, they encourage impersonal business relationships with market participants and move away from ineffective direct control. The development of indirect instruments of monetary policy is one of the most important moments in the process economic development, due to the fact that as the country's markets mature, direct instruments lose their effectiveness, because markets ultimately find ways to circumvent restrictions, especially when it comes to international transactions.

Open market operations affect the supply of money and credit through the influence on the reserve base of the banking system. As a monetary policy tactic in managing bank reserves, OOPs can be carried out in one of two ways: (1) active: fixing the volume of reserves and freely determining the price of resources (that is, the interest rate); or (2) passive: fixing the interest rate while varying the volume of reserves. Industrial countries with well-developed money markets tend to take a passive approach, although there have been exceptions in the past. The passive approach is now becoming the norm for emerging markets that have reached some level of development. Nevertheless, in the opinion of the author, in developing countries there is every reason to investigate

using an active approach. In such countries, the lack of efficient secondary or interbank money markets — designed to transmit the effects of monetary policy — may be one reason for taking a proactive approach. Another reason is that a proactive approach allows the central bank to define its policies in a transparent and open manner. An active approach is implemented in many stabilization programs in developing countries, supported by the IMF.

OPEN MARKET OPERATIONS

During the OOP, the central bank prefers securities with maximum liquidity and minimal credit risk. The liquidity of securities is an important aspect of intervention for several reasons. In order to effectively implement monetary policy, manage assets and liabilities, and fully fulfill the functions of the lender of last resort, the central bank needs to ensure that the distortion in the prices of securities during the OOP is as small as possible. As a rule, any securities actively traded on the secondary market have sufficient liquidity. Of these, the most suitable for the monetary authorities are those for which the credit risk is insignificant, that is, the probability of default by the issuer is extremely low. Given both criteria for selecting securities, most central banks have opted for government securities. They perform several functions at once in the activities of the central bank. First, securities are used to manage the liquidity of the financial system. Second, they serve as collateral to keep payment and clearing systems running smoothly. Thirdly, foreign securities act as an asset of the monetary authorities, covering the emission of the national currency.

In addition to purely operational considerations, the selection of securities is also influenced by the degree of development financial markets and central bank independence. In many countries, the securities market is not yet sufficiently developed to effectively conduct an OOP. In a number of industrial developed countries the implementation of a program to reduce public debt or a budget surplus makes it possible to do without borrowing in the debt market. According to OECD statistics, the volume of market securities

magician issued by industrialized countries (excluding Japan) fell from 45 to 40% of GDP over 1995-1999. In order to solve the problem of lack of OOP facilities, central banks issue their own securities. The most widespread are the following types of obligations issued by the monetary authorities:

> certificates of debt (Bank of the Netherlands,

National Bank of Denmark, Bank of Spain,

European Central Bank);

> financial bills (Bank of England, Swedish

Riksbank, German Bundesbank, Bank of Japan);

> bonds (Bank of Korea, Central Bank

Chile, Bank of Russia).

However, most central banks refuse to issue their own securities for several reasons. They seek to avoid the emergence of market fragmentation and maintain government bonds as a benchmark for financial market participants. By using not their own papers, but the obligations of the fiscal authorities, central banks thereby isolate themselves from unnecessary interference in the sphere of financial intermediation. In addition, the monetary authorities minimize the risk that can be imposed on the private sector in the form of distorted prices for financial assets that appear due to the choice of a particular asset as an object of public investment.

Another important aspect of OOP selection is central bank independence. If nongovernmental securities are targeted for intervention, the central bank may be accused of disloyalty and protectionism towards certain issuers. In order to avoid such scandals, the monetary authorities limit their choice to government securities.

Table 1 provides a comprehensive overview of central bank OOPs. Government securities used in the course of intervention are listed in the assets of central banks, and own securities - in liabilities. The stock portfolio of most central banks consists of debt obligations of foreign governments and domestic fiscal authorities, supranational agencies and financial institutions. All of them are actively traded in the market and have a high credit rating. From an OOP perspective, two factors affect the balance sheet structure of central banks. First, the openness of the economy and its dependence on the dynamics of the exchange rate of the national currency lead to a larger share of foreign reserves in

Table I

Balance structure of the central banks of the leading countries of the world,%

Source: Zelmer M. Monetary Operations and Central Bank Balance Sheets in a World of Limited Government Securities. IMF Policy Discussion Paper No. 7, 2001. - P. 6.

Central Bank Net Debt securities issued Financial credit Other

loans to foreign institutions

government assets financial institutions other institutions Repo Lombard loans

Reserve bank 65 9 0 0 26 1 0

Australia

Bank of Canada 4 85 4 0 4 2 0

National Bank 52 7 11 0 0 29 1

European 39 10 1 1 47 0 2

central bank

Central Bank of Iceland 23 5 4 0 64 3 1

Bank of Japan 4 60 0 12 19 1 4

Reserve bank 3 50 0 0 47 0 0

New Zealand

Central Bank 94 2 0 0 0 4 0

Norway

Swedish Riksbank 66 13 0 0 21 0 0

Swiss 75 1 1 2 21 0 0

National Bank

Bank of England 0 5 0 2 53 2 39

US Federal Reserve 5 88 0 0 7 0 0

Central Bank Cash Deposits Own Others

in circulation by financial governments other valuable net items

institutions institutions paper

Reserve bank 47 1 27 1 0 24

Australia

Bank of Canada 96 5 0 1 0 -1

National Bank 20 20 17 3 23 16

European 43 30 6 0 0 21

central bank

Central Bank 12 34 15 6 0 32

Iceland

Bank of Japan 60 6 23 0 5 6

Reserve bank 46 1 42 1 0 9

New Zealand

Central Bank 8 4 80 0 0 9

Norway

Swedish Riksbank 45 2 0 0 0 53

Swiss 30 5 9 0 0 56

National Bank

Bank of England 78 6 1 13 0 2

US Federal Reserve 95 3 1 0 0 1

assets and, as a consequence, to a significant share of foreign debt in the portfolio of central banks. The most striking examples are demonstrated by the monetary authorities of Norway, Australia and Denmark. Second, depending on the specifics of short-term refinancing of the financial system, the monetary authorities have more loans or securities in their assets. Especially-

The functioning of payment systems, the efficiency of the money market, and the tradition of refinancing determine whether the financial sector will be regulated through the securities market or a discount window. In Denmark, the Eurozone and Iceland, refinancing is carried out through a discount window, and in Japan, Canada, and the United States - through the stock market.

table 2

Operations on the open market of the central banks of the leading countries of the world

Source: Zelmer M. Monetary Operations and Central Bank Balance Sheets in a World of Limited Government Securities. IMF Policy Discussion Paper No. 7, 2001. - P. 7.

Central Bank Peno Direct deal Accounting of bills of exchange Currency swap Lombard loan Issue of own securities

Reserve Bank of Australia Yes No No Yes Yes No

Bank of Canada Yes Yes No No Yes No

National Bank of Denmark No No No No Yes Yes

European Central Bank Yes No No No Yes No

Central Bank of Iceland Yes No No No Yes No

Bank of Japan Yes Yes Yes No Yes Yes

Reserve Bank of New Zealand Yes No No Yes Yes No

Central Bank of Norway Yes No No No Yes No

Swedish Riksbank Yes No No No Yes No

Swiss National Bank Yes No No Yes Yes No

Bank of England Yes Yes No No No No

US Federal Reserve Yes Yes Yes No No No

Table 2 shows the main OOPs conducted by the central banks of developed countries. As it follows from it, the majority of central banks prefer to use peno and pawnshop loans instead of direct deals (outright operations). In both cases, financial institutions pledge financial assets to the monetary authorities or temporarily transfer ownership of them. The differences between peno transactions and lombard loans are predominantly legal rather than economic in nature. For example, in the European system of central banks, OOPs can be defined as peno or lombard loans depending on the legal status of the financial institution. For example, in Germany all OOPs are in the form of pledges of securities, while in France the same transactions are identified as peno transactions.

Most central banks prefer to use government securities or government-guaranteed bonds in peno transactions (Table 3). As a rule, the monetary authorities prefer not to create a peno market from scratch, but resort to the private peno market, where deals with government securities are already actively being concluded. In addition to government obligations, central banks use private securities in pawn and rediscount transactions. This partly reflects the fact that most transactions are concluded for one

day. With the help of ultra-short-term loans, banks smooth out the deficit or surplus of funds at the completion of settlements of payment systems at the end of each working day. For overnight transactions, where financial risks are minimal, private rather than government securities are quite suitable.

In all operations where banks pledge securities to the monetary authorities, the amount of collateral must be greater than the size of the loan. The initial margin protects the central bank from unwanted changes in the rate of the pledged financial asset. To make the possible adverse consequences for the monetary authorities as small as possible, additional requirements have been established for private securities. These can be the minimum external credit rating (Canada and Japan) or the minimum reliability threshold set by the internal credit analysis system of the central bank (European System of Central Banks). In some cases, the monetary authorities pre-determine the list of securities suitable as collateral (Sweden, Great Britain).

Not all central banks resort to classic securities OOPs. Monetary authorities in open economies are forced to operate also on the foreign exchange market. For example, the Reserve Banks of Australia and New Zealand use currency swaps in addition to the traditional

Table 3

Objects of operations in the open market of the central banks of the leading countries of the world

Source: Zelmer M. Monetary Operations and Central Bank Balance Sheets in a World of Limited Government Securities. IMF Policy Discussion Paper No. 7, 2001. - p. eight.

Central Bank Government securities Government agency securities Mortgage-backed securities Financial institution securities Industrial private sector securities Foreign I securities

Reserve Bank of Australia Yes Yes

Bank of Canada Yes

European Central Bank Yes Yes Yes Yes Yes

Central Bank of Iceland Yes Yes

Bank of Japan Yes

Reserve Bank of New Zealand Yes

Swedish Riksbank Yes Yes Yes

Swiss National Bank Yes Yes Yes Yes

Bank of England Yes Yes Yes Yes

US Federal Reserve Yes Yes Yes

Lombard Loan |

Central Bank Government securities Government agency securities Mortgage-backed securities Financial institution securities Industrial private sector securities Foreign securities

Bank of Canada Yes Yes Yes Yes Yes No

National Bank of Denmark Yes Yes Yes No No No

European Central Bank Yes Yes Yes Yes Yes No

Central Bank of Iceland Yes Yes No No No No

Bank of Japan Yes Yes No No Yes Yes

Reserve Bank of New Zealand Yes Yes Yes Yes Yes Yes

Swedish Riksbank Yes Yes Yes Yes Yes Yes

Swiss National Bank Yes Yes Yes Yes Yes Yes

Direct deal

Central Bank Government Securities. Securities of government agencies Mortgage-backed securities Securities of financial institutions Securities of the industrial private sector Foreign securities

Bank of Canada No No No Yes No No

Bank of Japan Yes No No No No No

Bank of England Yes Yes No Yes No No

US Federal Reserve Yes Yes No No Yes No

collateral instruments. In the past, when the national money markets were operating with sufficient currency swaps, the Swiss National Bank and the Bank were still underdeveloped, and the supply of government securities was underdeveloped in Norway.

RELATIONSHIP OF OPEN MARKET OPERATIONS WITH OTHER MONETARY POLICY INSTRUMENTS

For OOPs to become an integral part of national monetary policy, other monetary instruments must be appropriately adapted and the market infrastructure must be transformed. Let's take a look at how OOPs relate to other monetary instruments. If OOPs are to become the main policy instrument of the monetary authorities, other monetary instruments should be given less importance, especially the discount window through which the banking system obtains reserves by borrowing from the central bank. For OOPs to be effective, it is necessary to impose restrictions on banks' access to central bank credit. Without such restrictions, OOP cannot be used as the main instrument of monetary policy for managing the liquidity of the financial sector of the economy. For this reason, the discount window must be tuned in a special way so that market access to credit of last resort becomes less attractive, for example through high interest rates or restrictive credit directives. Some countries, such as Germany, use a double rate mechanism that includes a basic discount rate and a penalty rate for the Lombard to discourage misuse of the loan.

At the same time, restrictions on the discount window should be applied with caution. If the penalty rate is set much higher than the current market environment, the refinancing system will not be able to respond quickly enough to a sudden demand for liquidity. The principles of short-term refinancing, taking into account limited access to the window, should provide for a gradual, smooth adaptation to the conditions of a deficit of reserves. For example, central bank loans can be divided into ultra-short loans, which eliminate liquidity shortages, and long-term structured loans through a discount window, which, among other things, allow banking institutions to obtain the necessary funds in a critical situation.

In addition to the discount window, central banks have traditionally used reserve requirements as a means of monetary regulation. Reserve requirements can be considered either as an alternative to OOP, or as a tool to increase their efficiency from the point of view of

objectives of monetary regulation. Since the use of OOP became ubiquitous, central banks have resorted to much less reserve rate change. In many countries, they have been gradually reduced and in some cases completely eliminated, as reserve requirements make banks less competitive than other financial institutions.

A minimum, but not zero, reserve requirement may be required to assess the impact of OOPs on interest rates and money supply. The experience of some countries, such as the UK, that did not resort to reserve requirements suggests that they are not absolutely necessary. On the other side, financial crises, such as the Mexican crisis in late 1994, showed that reserve requirements are still useful in stabilizing the market. Even in the United States, with its highly developed money market, reserve requirements remain mandatory for operating deposits.

STATE DEBT MANAGEMENT

Obviously, government decisions on debt and deposit management have an impact on the OOP. Sometimes they can make the operation easier, and in other cases they can make it difficult. In all countries, the treasury and central bank are coordinating their actions, albeit with varying degrees of intensity and effort. In most cases, the final decision on debt management is made by the treasury, with the central bank acting as its agent. In areas where government operations have a direct effect on bank reserves, the central bank has a lot of word of mouth. Working relationships may differ depending on the traditions and financial history of the country.

In any case, OOPs will be most effective where the central bank controls the factors affecting the banking system's reserve base. In order to maintain a clear separation of monetary and fiscal policy operations, it is desirable that state debt released to meet the needs of the budget, was sold on the market by the treasury, in order to avoid any conflict between the management of public debt and the needs of monetary policy. Such issues should take the form of auctions, helping to develop a competitive, deregulated market system. It also avoids pressure

lending to the central bank to support the placement of securities on the primary market at a predetermined rate. From an OOP perspective, it is especially important for a central bank to influence, if not control, the Treasury's operating balance, which fluctuations affect the supply of bank reserves.

For a central bank, discretionary power to regulate government deposits is highly unusual, but there are a number of such examples around the world. The Bank of Canada, for example, has the power to transfer government deposits between its own balance sheet and the balance sheet of commercial banks. For Malaysian Bank Negara, government deposit auctions are a traditional instrument of monetary policy. The German Bundesbank has the right to "veto" the government's decision to place deposits outside its balance sheet.

In general, OOPs will function effectively when government adheres to and the public believes in a clear separation of debt management and monetary policy operations. In practice, this usually implies an agreement to neutralize the monetary effect of the treasury balance sheet or delegation of management to the central bank. In virtually all countries, debt management decisions are implemented through the central bank, both formally and informally.

OPEN MARKET OPERATIONS IN DEVELOPING COUNTRIES

As the national economy grows, financial markets expand and deepen. Their formation, as a rule, actively needs the leadership of the government and monetary authorities. The development of monetary policy instruments on the open market associated with the formation of the financial market usually occurs in two stages. First, through the auctions of new issues of securities in the primary market, there is a shift from direct control to the use of OOP.In the second stage, with the development of secondary markets, there is a full transition to flexible bilateral transactions with traded securities in the secondary market.

Few developing countries and economies in transition have ideal conditions for an effective OOP. Nevertheless, OOPs of one kind or another can and should be carried out in markets that are not yet fully prepared and are in the process of transformation. In such cases, the OOP needs to be

be varied in size or used on an off-period basis rather than on a regular basis. The participation of the central bank in the formation of the financial system, on the one hand, should accelerate the development of the market, and on the other hand, it should not jeopardize its balance sheet, which can reduce confidence in the monetary authorities. A central bank will be able to intervene successfully if markets are confident that its portfolio of assets is highly liquid and risk free.

The most suitable markets for OOP in developing countries are usually those in which short-term instruments are traded. Well-developed markets are characterized by large and sustained trading volumes involving a variety of players, including government, financial institutions and other businesses. Three sectors represent the best opportunities for effective OOP. These are the government and central bank securities markets, the interbank debt market, and short-term instruments issued by financial institutions and other corporations, including commercial and financial promissory notes, and bank certificates of deposit. Given the government's ability to manipulate fiscal policy and when there is a need to quickly raise their earnings, the government securities market is generally viewed as the most favorable environment for OOPs in developing countries. Unstable political and economic conditions, however, can make it impossible for the government's debt market to function properly. For the effective conduct of the OOP, it is critical that the government accurately adheres to the interest payments on the debt as well as the repayment of the debt. The government securities market may be plunged into collapse not only because of the refusal to fulfill contractual obligations, but also because of the pro-inflationary policy of the monetary authorities, which leads to the flight of investors from the market.

Short-term private debt, including interbank liabilities, is less suitable for OOP. In developing countries, it is characterized by specific credit risks. In addition, the use of private securities as the target of intervention forces the central bank to make difficult monetary policy choices. If the central bank buys up private debt, commercial entities may want to issue riskier securities. And if the central bank suddenly refuses to buy them, players can

completely turn away from such securities, which will provoke a crisis in the money market. One of the options for solving this problem is the restriction by the monetary authorities of their operations with securities that have the maximum credit rating established by an independent rating agency. In an environment where the volume of government debt is small or rapidly declining, the central bank may find that it has no choice but to switch to private money market instruments. When this happens, transactions in commercial bank instruments or interbank liabilities are much less problematic in terms of credit risk than transactions in other private instruments. If the government debt market has not yet reached the required volume, the central bank can influence the banking system through specialized emissions of government securities intended only for monetary policy purposes.

The central bank can also promote market development through the introduction of operating principles or codes for its counterparties. First of all, it is necessary to highlight the circle of business partners. The criterion for a business relationship with a central bank may include membership in a dealer group. Many countries conduct OOPs through primary dealers who have an obligation to quote bid and ask prices for securities when the central bank enters the market and during treasury auctions. Brazil, Czech Republic, India, Malaysia, Philippines, Poland and Russia (until 1998), for example, have introduced primary dealer systems. To perform their functions more efficiently, dealers must seek out retail customers, thus helping to develop a wider and more liquid market.

In small countries, establishing a primary dealer system, where the number of participants may be insufficient, is problematic and often impractical. However, when the market becomes large enough, there are many prerequisites for limiting the operations of a group of dealers, for example through the requirement for a minimum level of equity capital. To avoid accusations of favoritism, the group of dealers may have to be large enough. By establishing a dealer group, the central bank will benefit in terms of encouraging dealers to apply the best market-making king standards, such as the minimum transaction size for quoted price transactions.

As mentioned, both the central bank and the government need a well-developed government securities market infrastructure to conduct effective OOPs. It must have sufficient transparency for wide participation of various categories of players in it, as well as minimal counterparty risks. To achieve this quality of the market, the central bank needs to establish standards for the activities of its participants. To do this, he will naturally need to observe the market by collecting statistics and publishing summary information about the market. Of course, the central bank can do without additional functions if it resorts to direct regulation and mandatory market surveillance. However, such moves will force him to increase his staff, go down the path of bureaucracy and, ultimately, loss of efficiency and trust. The solution to the problem lies in a clear separation of powers and responsibilities between monetary policy operations (the responsibility of the monetary authorities) and the operations of the regulators (the responsibility of some other agency or, if within the central bank, a department separate from the OOP department).

STIMULATING THE DEVELOPMENT OF MARKET ARCHITECTURE

Any central bank prefers to operate in an efficient market in which trading occurs continuously and where market response is high. Monetary authorities can take steps to develop the interbank market, engineer market instruments and trade infrastructure, provide financing services, set dealing criteria, collect and disseminate statistics, and foster a secure payment and clearing mechanism.

The central bank is the center for the collection and dissemination of market statistics. The process of collecting data, including daily data on positions, transaction volume and funding by type of issue, should begin early in the development of the market. Statistics provide a basis for observation. Later, when the number of participants is so sufficient that data on an individual company or bank cannot be published, the central bank must release aggregate data on market activity. The publication must be delayed with a sufficient lag, for example by a week or

month, depending on the instrument, to avoid over-reaction of the market.

The central bank should also take the lead at an early stage in market development to introduce payment and delivery standards. No market functions without assurance that securities will be delivered on time and paid as agreed. While the speed and reliability of clearing and payment systems obviously depend on the technological capabilities of the market and institutional agreements, the central bank can play a large role in galvanizing such effects through the leverage of the lender of last resort. It may also work with the Treasury to introduce modern technologies into the government securities market, such as a registry system that records property accounts securely and provides simultaneous delivery versus payment through central bank deposit accounts. The monetary authorities must ensure that clearing institutions receive the necessary credit lines from banks at the time of denials of supply and payment.

The interbank market is especially important for monetary policy as it helps to determine the appropriate timing and amount of OOPs. Many countries specifically tailor monetary policy instruments to the interbank market. The central bank, together with the treasury, should take the lead in promoting market-based methods in the interbank market that promote competitive trading. This can be, for example, the introduction of computer systems for anonymous trading in securities. To promote market transparency, authorities should also discourage trade outside organized markets. The Treasury needs to take a particular interest in competitive trading given that the burden of the national debt must decline over time as government securities become more liquid.

FINAL OBSERVATIONS

Deregulation of financial markets makes administrative control over the banking system ineffective. International experience in this area shows that in the context of globalization, countries have no choice but to begin the transition to indirect regulation. Countries where the central bank is delaying market transitions subsequently face failure

lami in achieving the goals of monetary policy. On the other hand, as the experience of the crisis in Southeast Asia in the late 1990s shows, the use of market instruments does not at all guarantee the success of monetary policy. The presence of an arsenal of indirect tools is a necessary, but insufficient condition for the high efficiency of actions of the monetary authorities.

Most developing countries and countries with economies in transition began to apply reserve requirements in conjunction with the OOP. They also restricted access to the discount window, which nevertheless remained open as a “safety valve” for the banking sector. At the same time, for most emerging markets and transition economies prone to liquidity crises and sudden capital outflows, the combination of all monetary policy instruments without relying on any one of them can be the best choice in terms of efficiency. The transformation of the market during the development of OOP usually occurs in two stages: the organization of the primary market and then the development of the secondary market.

It is difficult for the central bank to accelerate the development of the financial market through OOP alone, as it risks dominating the market and crowding out private loans by government ones. Peno and reverse peno transactions are the most effective tools for encouraging early stage market development. At the same time, the central bank should actively promote the creation of a full-fledged interbank market, which will subsequently serve as a signaling function for monetary policy. However, if the central bank over-relies on private equity transactions, it is exposed to credit and liquidity risks. In the absence of a normal government securities market, the central bank's use of its own issues or special issues of the Treasury, strictly intended for monetary policy purposes, can be viewed as an alternative option for interventions.

(The publication was prepared based on the materials of the International Monetary Fund)

Central bank operations on the open market are currently the main instrument of monetary policy in world economic practice. The central bank sells or buys at a predetermined rate of securities, including government securities, which form the country's internal debt. This instrument is considered the most flexible instrument for regulating credit investments and liquidity of commercial banks.

Central bank operations 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, decreasing or increasing it. This effect is carried out through the change by the central bank of the purchase price from commercial banks or the sale of securities to them. With a strict restrictive policy, the result of which should be an outflow of credit resources with loan market, the central bank decreases the selling 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 lending opportunities 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 from their correspondent accounts pay for such a purchase, thereby reducing their lending opportunities associated with the issue of money.

Open market operations are conducted by the central bank, usually in conjunction with a group of large banks and other financial institutions.

The scheme for carrying out these operations is as follows:

suppose that there is a surplus of money supply in circulation in the money market and the central bank sets the task to limit or eliminate 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 their interest rates rise, and accordingly 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. A decrease in the volume of bank reserves, in turn, leads to a decrease in the supply of money 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 fills, which makes Treasury securities unattractive to their holders. The population and the bank are beginning 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 therefore to an increase in interest rates. In turn, the rise in interest rates will be reflected in the increase in the multiplier, which will partly offset the effect of the reduction in the monetary base. Conversely, buying transactions on the open market can lead to an increase in the demand for financial assets, a decrease in interest rates and a 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. In the context of the contraction of financial markets and the aggravation of the liquidity problem, the Bank of Russia in September 1998 developed an appendix on the introduction of Bank of Russia bonds (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 pawnshops. , intraday and overnight loans, as well as repo transactions with them. At present, the experience of issuing OBRs has demonstrated the still weak influence of this instrument on bank liquidity.

The policy instruments discussed are usually used by the central bank in combination in accordance with the objective 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 interest rates (refinancing rates), ranked second after the central bank's open market policy, is usually conducted in conjunction with the central bank's open market operations. 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 accelerates 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 increases the efficiency of open market operations. Conversely, when the central bank buys government securities on the open market, it sharply lowers the discount rate (below the yield on securities). In this situation, it is profitable for commercial banks to borrow reserves from the central bank and use available funds to purchase more profitable government securities. The expansionary policy of the central bank is becoming more effective.