At a New York Fed conference on Sept. 22, Treasury officials and market participants discussed whether the government should lend excess cash into the overnight repo market, which finances Treasury trades. Such a move could raise bank reserves. Treasury announced no repo-lending program, amount or timetable at the conference, and any benefit for Bitcoin would be indirect.

Reuters reported that several private-sector panelists welcomed the idea. The Treasury Borrowing Advisory Committee had considered it in May and urged further study. For now, the discussion is about how Treasury might manage its cash, rather than an operating program.

The Treasury General Account, or TGA, holds government operating cash at the Federal Reserve. In a May presentation, the advisory committee modeled what would happen if Treasury lent some of that cash overnight against Treasury securities. Money would leave the TGA, while bank reserves, the balances banks hold at the Fed, would rise. Treasury would earn a repo rate, and the Fed would pay interest on the additional reserves.

The two public institutions have to be considered together. Treasury’s interest earnings alone would not be the full government benefit, because additional reserves also bring an interest cost at the Fed. The economic result depends on the repo rate Treasury earns compared with the rate the Fed pays on reserves, after costs. The modeled transaction is Treasury cash lending, not Federal Reserve bond buying.

The size of the TGA is therefore a poor shortcut for the size of any possible operation. 05 trillion, plus or minus $50 billion, in late October.

Source link