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Government Cash Management: Its Interaction with Other Financial Policies

This note offers guidance on policy, institutional and practical issues for governments looking to develop a more sophisticated cash management function, specifically to move towards more active cash management. This involves financial market intervention by the government cash manager, with the aim of smoothing the projected short-term profile of the government’s net cash balances. The note is particularly relevant to emerging market countries where there are already functioning, if not necessarily well-developed, domestic money and bond markets. It is less immediately relevant for low-income countries that are highly dependent on donor financing and concessional loans or credits, and who lack even a limited domestic financial market. After a brief overview of good cash management practices, the note focuses on the interaction between cash and debt management, which takes the discussion into the interaction of cash management with monetary policy and financial market development. After discussing policy issues, institutional questions are considered: how should cash and debt managers coordinate; and how should their functions be coordinated with those of the central bank. In this paper, references to the ministry of finance (MoF) should be taken to include the treasury functions, notwithstanding that some countries have a separate treasury department or agency. A debt management unit (DMU) may also be part of the MoF or separately constituted (e.g., as a debt management office, DMO). The DMU or DMO may perform cash management functions, although these will often be shared with the MoF.