Question 1: What is the Treasury Stabilization Fund?
Question 2: What does Treasury Stabilization Fund mean?
The Treasury Stabilization Fund (Bond Stabilization Fund/Bonds Stabilization Fund/bond market Stabilization Fund) gradually evolved from the sinking fund.
The sinking fund was first proposed by the Englishman Valpo in the 18th century. He advocated that the government establish a special fund for debt repayment. In 1716, under the organization of Sir Robert Walpole, Britain began to set up the Sinking Fund.
In 1786, British Prime Minister William Pitt further modified the debt relief fund system based on Richard Price's suggestion that the country should borrow money at simple interest and lend money at compound interest. Price believes that the theoretical basis for the establishment of debt reduction funds is based on the compound interest accumulation calculation method. He believes that if 1% of the existing debt is used as the starting point of the fund and multiplied by compound interest, a 3% national debt can be repaid in 47 years; a 4% national debt can be repaid in 42 years; and a 5% national debt can be repaid in 37 years. clear. Using this method, there are two financial resources that can be used to buy and sell treasury bonds: one is the fixed amount of funds provided by the government every year; the other is the accumulation of interest on the treasury bonds that have been purchased and sold. The main approach in the UK at that time was that the government would withdraw a certain amount from the treasury revenue every year as a debt reduction fund specifically used to repay the national debt. The Debt Reduction Fund has a dedicated agency to manage it. The interest generated by this fund will be used to purchase treasury bonds at current prices according to the plan. For the treasury bonds that have been purchased by the treasury, a fixed amount of interest will still be paid, and the profit and balance will be attributed to the fund. It will continue to purchase treasury bonds next year until all the treasury bonds are purchased. until the sale is completed. The purpose of setting up a debt reduction fund is to balance debt expenditures in each year, make debt repayment more planned and rhythmic, and enable it to play the role of looking forward and looking forward and balancing debt expenditures between years. However, the actual implementation in the UK did not produce the expected results. The main reason is that most of the debt reduction funds were misappropriated by the government during financial difficulties, making the debt reduction funds exist in name only. Later, Prussia also implemented a debt relief fund system in 1820.
Japan began to establish a debt reduction fund in 1906. At that time, the Japanese government formulated the Special Accounting Law for the National Debt Disposal Fund and established the National Debt Disposal Fund. There are three sources of funds for the National Debt Processing Fund: one is the transfer of a certain proportion of the national debt balance; the other is the transfer of a portion of the general accounting balance; the remaining funds are transferred to repay the national debt. Amount of budget? Budget transfer.
The United States has also established a debt relief fund. In 1919, the United States passed the War Borrowing Act, with the purpose of planning to adjust the national debt accumulated during World War I, and set an annual amount for debt repayment. The amount of spending authority; with the implementation of Roosevelt's New Deal, additional expenditures as debt repayments were added, and the amount of these lasting spending authority was legally determined. There are three specific ways to include the debt reduction fund: (1) Expenditures based on the "War Loan Act of 1919", the amount of expenditure is equivalent to the balance of the national debt issued on July 1, 1920 minus the government holdings of foreign governments on the same day 2.5% of the debt amount. For various national debts purchased or repaid using the Debt Relief Fund, the expenditure limit is equivalent to the amount of interest payable for the year; (2) expenditures based on the "Emergency Relief and Construction Act of 1932", the expenditure amount is equal to the budget of the Act 2.5% of expenses. Of course, whether to use spending authority to actually repay debt depends mainly on the attitude of the government. By the 1920s, its authority was almost fully utilized, allowing the liquidation of the wartime national debt to proceed smoothly. However, due to the implementation of Roosevelt's New Deal in the 1930s and the subsequent World War II, the balance of the national debt increased, making it difficult to repay the national debt in an orderly manner. Under this situation, the government adopted a new policy of borrowing new debt to repay old debt. In this way, the debt repayment purpose of the debt reduction fund gradually disappeared.
To sum up, as the scale of national debt issuance in various countries becomes larger and larger, when the peak of national debt repayment arrives, the debt reduction fund originally aimed at repaying debt can no longer cope with the huge expenditure on principal and interest payments. This forces the government to adopt the method of repaying old debts with new ones. The debt sinking fund has no longer lived up to its name, that is, its debt repayment function has been lost. However, its function of regulating the bond market has been increasingly fully utilized because the fund is relatively stable. As a result, stabilization funds gradually replaced debt reduction funds.
As the National Debt Stabilization Fund has developed to the present, its purpose and role are completely different from the debt reduction fund in the past. The Debt Reduction Fund was originally designed to balance debt expenditures until the national debt is completely eliminated. Quasi-funds are set up by the government to protect the high credibility of government bonds, enhance the government's solvency, maintain the expectations of government bond holders, encourage investors to subscribe for government bonds, and maintain the sustained and stable development of the government bond market. Now, the national public debt fund in the British budget system actually plays the role of a stabilization fund. It was transformed from the so-called "underline budget" before 1966, and is actually the country's second budget. The main sources of the National Treasury Fund include: regular budget allocations, profits from the Bank of England Issuance Bureau, interest and repayments on loans to state-owned companies and local governments, etc.
Its funds are mainly used to buy and sell treasury bonds to maintain the stability of the bond market, make up for regular budget deficits, and provide loans to state-owned companies and local governments.
Judging from the market in which stabilization funds function, there are currently several categories: foreign exchange stabilization funds, government bond stabilization funds, grain stabilization funds, and stock market stabilization funds.
Japan’s current national debt stabilization fund also evolved from the debt reduction fund. In 1965, Japan issued so-called revenue subsidy treasury bonds, and after 1966 it successively issued so-called construction treasury bonds. This made it urgent for the government to establish a special accounting law on the national debt repayment fund (promulgated and implemented in May 1968 and adopted in 1967), forming the current national debt equalization fund. In the current system, the stabilization fund mainly comes from three aspects:
(1) When preparing the budget every year, based on the total accumulated national debt at the beginning of the year, a fixed rate of 1.6% (roughly equivalent to 1/60) Transfer it from the general accounting budget to the fund;
(2) The general accounting budget also makes corresponding allocations to the stabilization fund based on the needs of debt repayment and bond market control in each year;
( 3) If there is a surplus in the general accounting budget, more than half of it must be transferred to the stabilization fund.
The above three items constitute the main sources of Japan’s stabilization funds. For example, in the 1980 national debt expense budget, the national debt repayment fee was 823.2 billion yen, of which 36.5 billion yen was transferred at a fixed rate, accounting for 4.4% of the total repayment cost, and 108.7 billion yen was transferred from the budget, accounting for 13.2% of the total repayment cost. . Because the operation of Japan's stabilization fund not only seeks to balance the fiscal burden, but also uses it flexibly depending on the fund's capital status and bond market conditions, it maintains the stability of the government bond market. Therefore, in comparison, Japan's stabilization funds are better than those in Europe and the United States.
The function of stabilization funds in regulating the treasury bond market
The main function of stabilization funds in regulating the treasury bond market is: when the treasury bond market is in a downturn for a long time and the government wants to revitalize the bond market, or when the treasury bonds When there is a large amount of selling in the transaction, which harms the interests of bond holders and poses a threat to the issuance market, the government can activate the stabilization fund and buy a large amount of second-hand bonds to stimulate an increase in transaction prices and reduce principal and interest payments; and when government bonds The market is too hot and speculation is rampant. If the government wants to cool down the bond market, or when the demand for the bond market is too strong, the government can take the opportunity to sell some treasury bonds to keep the yield and trading price of treasury bonds within a reasonable range. This "reservoir"-style regulatory mechanism that can advance and retreat is conducive to the stability and healthy development of the national debt market.
What needs to be pointed out here is that some scholars believe that when stabilization funds control the bond market, they often buy large amounts when prices are low and sell large amounts when prices are high, thus working against market investors. The suspicion of profiting from it will ultimately harm the interests of bondholders. When the United Kingdom pays off its consolidated national debt or consolidated national debt, it often chooses to buy large quantities when the market price of the national debt is lower than the par price until its debt disappears. Japan also uses the buy-and-sell method to repay government bonds, and limits its use when the market price of government bonds is lower than the par price. This does not deny that sometimes this method cannot be used when the market price of government bonds exceeds their par amount. When the price of government bonds is low, the government purchases government bonds based on price. On the surface, it seems to hinder the interests of government bond holders, but this is not the case. Because treasury bonds in the trading market are conducted in accordance with market rules, that is, only when voluntary sellers sell treasury bonds, the government stabilization fund can purchase them. The government is only one of the buyers in the market, and holders of treasury bonds may also use treasury bonds at the same price. The price is transferred to other buyers, and transactions can only be achieved through voluntary equal competition between buyers and between buyers and sellers. The government's purchase of national debt in the bond market will stop the decline in national debt prices and promote the recovery of national debt prices, which is important for national debts. Holders still benefit.
The practice of the development of the treasury bond market in Western developed countries, especially Japan, has proven that the treasury bond stabilization fund is the most powerful and effective means for the government to implement macro-control of the treasury bond market through economic channels. Our country's government bond market has a high starting point and is developing rapidly. But what is worrying is that our country has not established such a mechanism so far. As a result, the trading market conditions were sluggish from 1988 to 1989 and the second half of 1992 to 1993, the yield on second-hand bonds was too high, and the market conditions in the second half of 1994 When the market became too hot, trading prices remained high, and the Treasury futures market was in chaos in early 1995, the government was helpless and in a very passive position. Therefore, it is urgent to establish a stabilization fund.
The impact of the national debt sinking fund on my country’s bond market
The national debt sinking fund and the stabilization fund are different in terms of their purpose of use. The former is mainly for the purpose of balancing debt repayment, while the latter is mainly for the purpose of stabilizing the government bond market. Under the conditions of the socialist market economy, it is uneconomical to establish a sinking fund solely for the purpose of repaying debts, because under the conditions of the modern market economy, the purpose of the government's issuance of national bonds is not only to make up for the fiscal deficit, but also to The purpose of macroeconomic control. Moreover, maintaining the stability of the government bond market is also an important responsibility of the government. Therefore, the national debt stabilization fund established by our country should have the dual functions of stabilizing the bond market and repaying national debt. There is no need to establish separate stabilization funds and debt sinking funds. Our country had the idea of ??setting up a sinking fund in 1987, when the Ministry of Finance decided to set aside 500 million yuan from that year's debt revenue as a sinking fund.
At that time, it was intended to be a debt-to-debt fund, but it did not materialize due to various reasons. In 1991, the actual issuance of treasury bonds exceeded the planned issuance by 9.93 billion yuan. The Ministry of Finance decided that the excess issuance would not be included in the budget for the time being and would be reserved for use when the debt repayment peak came in 1992. In this way, the idea of ??establishing a sinking fund became a reality. The work to be done now and in the future is to ensure that the current year's funds are not misappropriated, otherwise the sinking fund will be in name only; the second is to continuously expand the sources of the sinking fund based on economic development and fiscal budget conditions; the third is that the government should activate This fund enables it to play the role of stabilizing prices and maintaining stability in the government bond market, making the fund gradually become a stabilization fund.
The Treasury Bond Stabilization Fund is still a brand-new regulatory tool for us. Judging from the operation of the Stabilization Fund, it will have a significant impact on both the issuance market and the trading market of my country’s Treasury bonds:
(1) Stabilization funds are conducive to the expansion of the scale of government bond issuance. Stabilization funds can serve as a bridge and link between the government, securities firms, and treasury bond investors. As a result of stabilization funds regulating the bond market, the income from government bond investment has the characteristics of safety and stability, allowing investors to buy without worries;
(2) Stabilization funds are conducive to improving the The efficiency of the Treasury bond issuance market. The development goal of the treasury bond issuance market is to establish a high-efficiency and low-cost treasury bond issuance market. The establishment of stabilization funds will not only help speed up the issuance of government bonds, but also shorten the underwriting period, save issuance fees, and reduce issuance costs.
(3) Stabilization funds are conducive to enhancing the liquidity of the treasury bond spot trading market, conducive to the formation of a trading market with the OTC market as the main body, and promoting the development of treasury bond spot trading;
(4) Stabilization funds are conducive to controlling excessive speculation and market manipulation in treasury bond futures trading, and are conducive to the true functioning of the treasury bond repurchase trading market, thus contributing to the formation of a treasury bond derivatives trading market.