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Explanation of National Debt Management Research

In recent years, national debt management and the development of the national debt market have become a topic of common concern to both developed and developing countries. According to the definition of the World Bank and the International Monetary Fund, national debt management is the process of formulating and executing government debt management strategies to meet government financing needs, achieve cost and risk management objectives, and achieve other government debt management goals, such as establishing and developing Efficient and highly liquid Treasury bond market.

Based on the comparative study of international experience, this book studies national debt management from different perspectives, including national debt management objectives and transmission mechanisms, national debt scale management, national debt issuance management, and the liquidity of the national debt market. Improve, use national debt management policies to prevent financial risks, coordinate national debt management with monetary policy, cash management, etc. Based on the analysis of issues related to my country's national debt management, the goals and several suggestions for the development of my country's national debt management and national debt market are put forward. Now we will briefly describe the framework structure and main contents of this book.

This book is divided into 9 chapters. The introduction and conclusion are divided into separate chapters, and the main body consists of 7 chapters.

Chapter 1, Introduction. The introductory part first explains the background and significance of the book's topic, and explains the basic concepts; secondly, it summarizes domestic and foreign research from the perspective of the impact of national debt on the economy and debt risk, and discusses the management of national debt and the development of the national debt market. The significance of this book is briefly explained, and on the basis of clarifying the research methods and overall framework of this book, the innovations and shortcomings of this book are pointed out.

Chapter 2, the objectives, transmission mechanism and policy coordination of national debt management. The goals of national debt management include two levels: basic goals and final goals. The basic objectives of national debt management include minimizing debt costs and minimizing debt risks. The ultimate goals of national debt management include economic growth, price stability, fair income distribution, effective allocation of resources and balance of international payments, which are consistent with the ultimate goals of fiscal policy and monetary policy. There are sometimes conflicts between debt management objectives. The government needs to choose between minimizing financing costs or minimizing risks to achieve the best mix of long-term bonds and short-term bonds. As an important bond type in the financial market, government bond management policy tools mainly include the determination of the size of government bonds, the design of government bond maturity varieties, the selection of government bond issuance objects and methods, the determination of government bond issuance interest rates, the sale and repurchase of government bonds, and the use of derivatives. Etc., debt managers use the above policy tools to influence the liquidity and interest rate levels of financial markets, and ultimately achieve the goals of macro-control through the transmission mechanism. At the same time, national debt management policy is closely related to fiscal policy and monetary policy, and is also the joint point for the coordination and cooperation of the two major macroeconomic policies. These contents will be discussed in this chapter.

Chapter 3, International Comparison of National Debt Management. Based on years of discussion and practice by debt managers in various countries, this chapter proposes the best ways to develop primary and secondary markets, and discusses several issues in market development, challenges faced by the development of emerging bond markets, and new issues faced by national debt management. was elaborated. The United Kingdom, the United States, Canada, and Japan have accumulated different experiences in treasury bond management and treasury bond market development, and this chapter introduces them respectively. In recent years, many OECD member countries have experienced budget surpluses or reduced deficits. Faced with this situation, in order to restructure debt assets and offset the impact of reduced issuance on liquidity, many countries have adopted similar management techniques. Includes conversion operations designed to increase market liquidity and consolidate new and outstanding bond issues into larger benchmark bond issuances. This chapter analyzes the above issues from different angles, with a view to providing some reference for my country's national debt management and market development.

Chapter 4, Management of National Debt Scale - Also Commenting on National Debt Risks. The key to reasonably constraining the appropriate scale of national debt is how to determine the limit of the scale of national debt within a certain period, so as to effectively prevent national debt risks and fiscal risks. This is the focus of this chapter. This chapter first analyzes the appropriate national debt scale indicator from a theoretical and empirical perspective, summarizes the stable burden rate conditions for national debt scale growth, and the critical value model for national debt scale growth, and points out that the determination of the indicator critical value should not blindly copy other countries. Experience should be comprehensively considered based on the country’s economic system, fiscal revenue and expenditure, and market development.

Then, based on the indicator analysis, the scale risk, issuance risk and repayment risk of my country's national debt are evaluated. If we analyze it from the perspective of debt burden ratio, deficit ratio and residents' debt ratio, we can basically conclude that the current scale of my country's national debt is not too large and is generally still moderate. As long as our country can maintain a relatively reasonable real economic growth rate, adopt correct macroeconomic policies, ensure that the real interest rate of national debt does not exceed the real economic growth rate, and at the same time basically control the deficit within a certain level, and strive to improve the investment efficiency of national debt, then national debt If the scale is sustainable, there will be no major fiscal risks and debt crisis will not occur. Moderate government bond issuance will contribute to stable economic growth. However, if we examine it from the perspective of debt servicing ratio and forecast for the next few years, this book believes that my country's debt servicing burden is increasing year by year and must be paid enough attention to. As the issuer and manager of treasury bonds, the Ministry of Finance should take reducing interest payments on debt as the main goal of debt management on the premise of ensuring the government's capital needs, balance debt repayment expenditures on the basis of optimizing the cost of treasury bonds, and avoid fiscal risks.

Finally, from the perspective of the national debt scale management system, the experience of many countries shows that the management of national debt balances is an effective way to control the scale of national debt. Under this system, debt managers are relatively flexible in their use of national debt policies. Our country has replaced the traditional issuance management system with a balance management system, which will have a profound impact on national debt management and the coordination of fiscal and monetary policies. This chapter will analyze the above issues from multiple perspectives.

Chapter 5, the cornerstone of national debt management - issuance management. The issuance of national debt is an important part of national debt management. Different issuance methods have a great impact on the efficiency and cost of government financing, and the issuance method adopted is restricted by the country's economic and financial system and the degree of development of the financial market. Judging from the practice of developed countries, the currently adopted methods of issuing treasury bonds include direct issuance, continuous issuance, offtake and underwriting, and public offering and bidding. The principle of selecting an appropriate issuance method should be one that can reflect the goal orientation of debt management, and The national debt can be used as an effective tool for coordinating fiscal policy and monetary policy. On the basis of comparing various issuance methods, this chapter briefly reviews and evaluates the evolution of my country's treasury bond issuance methods. The cost management of national debt is the key to national debt management. In national debt management, the cost of national debt can be reduced through various channels, including establishing a low-cost and efficient issuance market, conducting corresponding conversion and buyback of national debt in a timely manner, and strengthening the construction of financial infrastructure. wait. National debt structure management includes management of variety structure, term structure, interest rate structure, debt subject structure, etc. The core issue is the selection of the term structure of treasury bonds. A reasonable term structure will promote the issuance of the primary market and the secondary market. of liquidity. The characteristics of the treasury bond term structure are affected by factors such as national savings, household consumption, financial system characteristics, investor structure, government fund demand structure, and secondary market liquidity. When new bonds are issued, the determination of the duration of the treasury bonds and the matching of long-term and short-term treasury bonds are the specific contents of treasury bond management. Considering the conflict between the debt management financing cost minimization objective and the liquidity objective, this chapter coordinates the financing cost objective with the liquidity objective of national debt in the maturity design. On this basis, the government utility loss function is introduced to determine the optimal maturity of national debt. The model was derived. Combined with international experience, the main ideas for the innovation of my country's national debt varieties are put forward, namely the issuance of savings bonds, index bonds and capital-disbursed bonds. At the same time, it is believed that the introduction of pre-issuance is one of the ways to innovate the issuance mechanism, and a preliminary design of the pre-issuance plan is proposed frame.

Chapter 6, the key to national debt management - establishing a liquid secondary market. The primary and secondary markets for government bonds must develop simultaneously and in parallel. For government bonds to be issued smoothly in the primary market at reasonable prices, they must rely on a complete secondary market for government bonds. Only a highly liquid secondary market for government bonds can form a more reasonable government bond yield curve and promote the adjustment of interest rates. marketization process to achieve effective coordination between fiscal policy and monetary policy. At the same time, the highly liquid secondary market for government bonds is also a good place for investors to manage assets, effectively avoid financial risks and determine the prices of financial products.

This chapter first conducts an international comparative study on the liquidity issues in the treasury bond market based on the microstructure theory of financial markets. Metrics used to measure liquidity include tightness, depth, and elasticity. Factors affecting the liquidity of the treasury bond market include product design, market structure, trading mechanisms, information disclosure, taxation and other issues. Judging from international experience, the development direction of the government bond market should be to establish a deep and liquid market. Ways to improve market liquidity include a competitive structure of transactions, minimizing the negative impact of taxation on liquidity, and improving transaction information. Transparency, standardized trading and clearing operations, diversification of market participants, determination of core assets, meeting market demand for benchmark bonds, improving the functions of the repo market and derivatives market, cultivating institutional investors, adequate market supervision, etc. Then, on the basis of international comparison, this chapter analyzes the current situation of insufficient liquidity in China's government bond market, and proposes policy recommendations to improve the liquidity of my country's government bonds: First, improve the function of the government bond benchmark interest rate. Although due to various reasons, the current interest rate of my country's government bonds is not enough to function as a benchmark interest rate, if the structure and trading mechanism of the government bond market can be optimized, the government bonds should be able to serve as a benchmark interest rate.

The second is to cultivate and improve institutional investors. The development of institutional investors has a widespread and profound impact on the microstructure of the capital market, which not only improves the efficiency of clearing and settlement, but also contributes to the accurate pricing of financial assets. The third is to gradually establish a unified and interconnected government bond market system. The segmentation pattern of my country's treasury bond market began in 1997 when commercial banks withdrew from the exchange market and the inter-bank bond market was established. Currently, market segmentation is an important constraint for improving the market system and improving market efficiency. Therefore, the national debt management department should take measures to promote the establishment of a unified and interconnected market system, including the free choice of trading venues by market participants, the establishment of a unified registration, custody, and settlement system, etc. The fourth is to improve the market maker system. Drawing on foreign market development experience, the market maker system plays a decisive role in improving the liquidity of the government bond market. At present, although there is a market maker system in my country's inter-bank treasury bond market, the problem of market making but no market has always existed. To this end, we should learn from foreign experience and further improve the market maker system of our country's treasury bond market. Finally, relevant policy suggestions are put forward to improve and improve market liquidity. This chapter provides a more detailed explanation of the above contents.

Chapter 7, National Debt Management and Financial Risk Prevention. As a government credit tool, national bonds are the combination of fiscal policy and monetary policy. National debt policy is a "double-edged sword." National debt policy and financial policy are coordinated and used properly, which can promote the stability and development of the financial industry. If there is a deviation in cooperation, it will endanger the security and stability of the entire financial industry. Therefore, it is very urgent to strengthen research on financial risk prevention in the operation of the government bond market. This chapter first briefly analyzes the risks of treasury bond management and treasury bond market operations, and then analyzes the significance of treasury bond management and treasury bond market development in preventing financial risks based on the examples of Asian countries rapidly developing their treasury bond markets after the crisis. Reflecting on the Asian financial crisis, theoretical circles and debt management authorities began to realize that the lagging development of the bond market was one of the main reasons for the outbreak of the Asian financial crisis. South Korea quickly developed its government bond market after the Asian financial crisis and recovered from the crisis relatively quickly. China implemented a proactive fiscal policy in 1998, which was mainly characterized by issuing additional government bonds to promote economic growth, thereby effectively avoiding financial risks. The above examples are sufficient. It shows that the development of the treasury bond market is of great significance to the prevention of financial risks, and then proposes that the development of the Asian bond market should be the only choice for Asian countries to prevent financial risks. Finally, considering that Chinese commercial banks are the largest investors and holders in the government bond market and will face huge interest rate risks in the upward trend of interest rates, this chapter analyzes how the government should respond from the perspective of practical experience in India. Commercial banks, the largest holders of treasury bonds, provide an effective hedging mechanism for interest rate risks. At the same time, it is proposed that the derivatives market should be actively developed to deal with interest rate risks, such as improving treasury bond interest rate swaps, and whether it is time for my country to resume treasury bond futures trading. were discussed.

Chapter 8, coordination of national debt management, treasury cash management, and monetary policy. This chapter first explains the meaning and objectives of cash management, and then analyzes the basic model of treasury cash management based on international experience. On this basis, it analyzes the significance and methods of treasury cash management in our country, and analyzes debt management. The relationship with cash management is explained. For developed market economy countries, treasury cash management refers to the main methods of the Ministry of Finance through regular issuance of short-term bonds and daily operation of treasury cash to smooth out fluctuations in treasury cash flow, optimize the government's financial situation, improve the efficiency of treasury cash use, and realize the government's Goals such as minimizing borrowing costs, maximizing returns on government savings and investments, and coordinating fiscal and monetary policies. The experience of developed countries shows that the objectives of debt and cash management should be consistent. That is: "minimize the government's long-term debt financing costs, control debt risks, and manage the total cash needs of the Ministry of Finance (i.e., the central government account) in the lowest-cost manner, while achieving consistency with monetary policy objectives." Treasury debt management and treasury cash management are both overlapping and different. They influence each other and complement each other. In the early days of treasury cash management in our country, there were two main operations: commercial bank time deposits and the repurchase of treasury bonds. The repurchase operation was the main coordination tool for debt management and cash management. This chapter introduces the specific practices of treasury bond buyback operations based on the experience of EU member states and the United States. Since 2006, my country has begun to implement a national debt balance management system with reference to international practices, ending the annual issuance approval method for many years. This will lay an institutional foundation for the coordination of my country's national debt management, monetary policy and treasury cash management. It not only marks the maturity and transparency of a country's financial management, but the rolling issuance of short-term government bonds can also provide more flexible means and richer tools for debt management, cash management and monetary policy. In addition, national debt management, cash management and monetary policy operations should be completely separated in institutional settings and policy decisions, and an effective communication mechanism should be established to achieve efficient coordination at the operational level and when necessary.

Chapter 9, conclusion. This chapter first summarizes and summarizes the basic conclusions of the book, and then, based on drawing on international experience, proposes the goals of China's national debt management and the development direction and path of the national debt market. In the long term, the goal of my country's national debt management should be to minimize the government's debt financing costs, control debt risks, and at the same time achieve coordination with monetary policy and other policies. To achieve this goal, a unified, interconnected, open, safe and efficient treasury bond market should be established, of which establishing a liquid treasury bond market is the key.