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A better auction mechanism, and why governments should sell futures rather than debt
Author(s) -
Wiseman Julian D. A.
Publication year - 1997
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/1468-0270.00059
Subject(s) - debt , business , futures contract , bidding , cash , monetary economics , revenue , finance , balance (ability) , mechanism (biology) , commerce , economics , marketing , medicine , philosophy , epistemology , physical medicine and rehabilitation
The mechanism by which governments sell debt at auction imposes unnecessary risks on primary dealers, who charge for these risks by bidding less. A better auction mechanism would increase the price at which governments sell their debt. Further, selling a specially designed futures contract would reduce dealers’balance sheet usage, again increasing revenue, and would also permit the authorities to match cash inflows with cash outflows.