New FAD Technical Note and Manual: Cash Management and the Relationship Between Treasury and Central Bank

Posted by Renaud Duplay

Cash management is one of the main issues when reforming PFM systems in developing countries. Bad cash management is costly because it hampers budget execution, causes arrears and increases funding costs. For this reason the Fiscal Affairs Department (FAD) has already released two Technical Notes and Manuals (TNMs) on this subject and is now releasing further guidance material. A new TNM, prepared by Mario Pessoa and Mike Williams, expands the review of cash management issues by specifically addressing the relationship between the treasury and the central bank.  

The note was prepared at the request of the Latin American Treasurers' Forum (FOTEGAL) and addresses both institutional and technical issues and is particularly relevant to developing countries. Based on international experience, the TNM describes the modern framework of a formalized relationship between both institutions standing on two key principles:

• An improved coordination between cash and debt management and monetary policy is beneficial for both institutions. Coordination not only facilitates the central bank’s unobstructed execution of monetary policy but also ensures that government cash and debt management policy is not unduly influenced by monetary policy.
• Government banking services provided by the central bank and other financial institutions should preferably be provided on a transparent basis, at market rates and costs should be reflected fully in the government budget.

The new TNM is available in both English and Spanish.

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