The term "open market operations" means .. The essence of open market operations and their application in different countries

The term "open market operations" meansa set of actions by the central bank to change the liquidity of the financial system. In practice, there is an increase or decrease in the supply of national currency in circulation. For this, government bonds are sold or bought by the central bank of the country on the open market (hence the name) or participate in repo transactions, which is the most used tool of modern monetary policy with commercial credit and financial institutions. Its main goal is always to ensure the proper level of liquidity, establish the necessary interest rate, the exchange rate of the national currency, short-term inflation and maintain the strategic volume of the monetary base.

The essence of the process

The term "open market operations" means thatThe central bank directly affects liquidity. It has special accounts for commercial establishments. Their balance reflects the money of the Central Bank in the relevant currency. The increase in the amount on the accounts does not lead to a mandatory additional issue of banknotes. This is due to the fact that modern money exists more in the form of electronic records, and not as physical objects. Therefore, the Central Bank can instantly increase or decrease the amount on Loro accounts. However, electronic money is exchanged for coins and banknotes. Therefore, after increasing the amount on the Loro account, the Central Bank should be ready for additional emission. However, only in the event that the cash will require a commercial financial and credit institution.

Repurchase Transactions

The term "open market operations" means indeveloped countries, that the Central Bank not only gives a loan, but also takes as assets collateral assets that are considered suitable. The cost of the latter must cover the amount granted to a commercial financial and credit institution on credit. The use of repo operations avoids unnecessary fluctuations in interest rates, exchange rates and the level of inflation associated with a sharp change in monetary policy. Security is also a guarantee that the national economy will not suffer a loss in the event of a bankruptcy of the borrower.

Interrelation with interest rates

The term "open market operations" meansThe instrument of monetary policy, which involves the acquisition or sale of bonds by the Central Bank of the country. The main objective of such actions is connected with the regulation of the size of the monetary base and short-term credit rates. Also, when carrying out such operations, the inflation rate and the exchange rate are changing. Everything is the same as with the goods. If the Central Bank starts selling government bonds, then the liquidity of the financial system is reduced. There is less cash in circulation. This leads to an increase in the overall demand for money. Accordingly, interest rates are growing, the national currency is strengthening, the level of inflation is decreasing. If you want to lower interest rates, the Central Bank sells government bonds. This increases the supply of money. In fact, a sufficiently large financial and credit organization can always affect the level of rates. But the Central Bank has endless resources to replay the situation.

IN USA

After the global financial crisis, the Fed beganto pay interest on excess bank reserves. This allows to reduce the risk of issuing commercial banks loans to unreliable borrowers. The Central Bank's actions in the foreign exchange market are mostly repo transactions overnight. They are used to temporarily increase the supply of money. Also, the FRS carries out a reverse repo operation. They are used when it is necessary to reduce the supply of money. Repo transactions are used to temporarily compensate for changes in bank reserves. The Fed also conducts transactions for the final sale or purchase of government bonds or other financial assets.

THE WEIGHT

In the European Union, similarinstruments of monetary regulation. The ECB describes its monetary policy as a four-level one. What operations are used depends on the desired outcome and the need for changes in the financial sector in the short or long term.

In the Russian Federation

The Central Bank of Russia also uses theoperations as part of their policies. However, their scale is much smaller than in the US. The objective of the CBR is to ensure the stability of the ruble, the smooth operation and strengthening of the financial sector. Repo operations for the Russian Federation are a fairly new regulatory instrument, but they are already widely used and have good prospects for further development.