APPENDIX I. TSA Country Examples1

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1 Some of the countries listed in this table (particularly under the groupings Latin American and ECA countries) are in the process of establishing a TSA and, therefore, do not have a full TSA as yet. 2 There are a few exceptions: some small funds and the financial operations of the national assembly are administered outside the TSA regime.

APPENDIX II. Interbank Payment and Settlement Systems 34

Interbank payment and settlement systems around the world are undergoing fundamental changes, which are making treasury management more efficient and more secure. Paper checks and cash are being replaced by electronic means. The institutional environment in which the payment systems operate, including the degree of development of the interbank money market and the sophistication of participants’ treasury management, has been determinant in this trend.

Interbank payment systems can be classified as (i) wholesale (large value), and (ii) retail and small value systems. Each payment system uses different settlement systems. Also, payment systems either settle immediately on a gross basis or after some delay on a net basis.

Large Value (Wholesale) Payment Systems (LVPS). There are three main types: (i) Deferred Net Settlement (DNS) systems: they create intraperiod risks, which explain why they are now used by most countries usually for low-value payments; (ii) Real-Time Gross Settlement (RTGS) systems: they eliminate many of the intraday and participant settlement risks associated with net settlement; and (iii) Hybrids, such as Continuous Net Settlement (CNS) and queue-augmented RTGS, which redesign DNS and RTGS systems to reduce risk.

The risk and costs in DNS systems led to the adoption of RTGS in all EU and most G-20 countries. TARGET, the Fed’s Fedwire, and the Bank of England’s CHAPS Sterling are the largest LVPS. The three systems are operated by their central banks. Given that the central banks guarantee payment, there is no settlement risk to the participants. Fedwire is also used for the settlement of U.S. government securities.

Retail and Small Value Payment Systems (SVPS). The structure of retail and SVPS still differs substantially among countries. In many, only private entities provide clearing services, while in some, central bank services coexist with private suppliers. However, after multilateral clearing, settlement usually takes place at the end of the day through accounts held at the central bank.

As mentioned above, an important trend in SVPS has been the shift from cash and paper-based instruments to electronic payment methods. In addition, there has been an increase in straight through processing (STP) due to enhanced interoperability of payment procedures based on common data protocols.

An example of an SVPS is the Automated Clearing House (ACH) network in the U.S., which handles repetitive batch transactions, such as payroll, pension, and annuity payments (credits), and collection of insurance premiums, and utility bills.

V. References

  • Dener, Cem, 2007, Treasury Single Account Practices in ECA, mimeo.

  • Economist Intelligence Unit (EIU), 2005, “Assessing Payments Systems in Latin America,” The Economist.

  • Garbade, Kenneth, John C. Partlan, and Paul J. Santoro, 2004, “Recent Innovations in Treasury Cash Management,” Current Issues in Economics and Finance, Vol. 10, No. 11 (November).

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  • Horcher, Karen A., 2006, Essentials of Managing Treasury, John Wiley & Sons, Inc.

  • Horcher, Karen A., 2006, Essentials of Managing Cash, John Wiley & Sons, Inc.

  • Larson, M. Corinne, 2007, “Local Government Cash Management,” Chapter 2 in Local Public Financial Management, ed. by Anwar Shah, The World Bank.

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  • Lienert, Ian, 2009, Modernizing Cash Management, Technical Notes and Manuals, Fiscal Affairs Department (Washington: International Monetary Fund).

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  • Schmitz, Stefan W. and Geoffrey E. Wood, 2006, “Institutional Change in the Payments Systems and Monetary Policy—An Introduction,” in Institutional Change in the Payment System and Monetary Policy, ed. by Stefan W. Schmitz and Geoffrey E. Wood (Routledge).

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  • Ter-Minassian, Teresa and Pedro Parente, 1995, “Setting Up a Treasury in Economies in Transition,” IMF Working Paper 95/16 (Washington: International Monetary Fund).

    • Crossref
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  • White, Lawrence H., 2006, “Payments System Innovations in the United States since 1945 and their Implications for Monetary Policy,” Chapter 1 in Institutional Change in the Payment System and Monetary Policy, ed. by Stefan W. Schmitz and Geoffrey E. Wood (Routledge).

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1

This working paper has benefited from peer review by M. Cangiano, M. Lazare, R. Allen, D. Radev, J. Gardner, I. Lienert, and T. Prakash. Helpful comments were also received from other FAD/IMF colleagues and from M. Williams (FAD consultant).

2

For a definition of public monies, see the section on TSA Coverage.

3

Some funds, notably those controlled by donors, and loans from multilateral institutions, are more difficult to integrate into the TSA. However, there is an observed trend of donors agreeing to various arrangements to integrate their aid flows with the TSA in several countries (see the section on TSA Coverage).

4

The TSA arrangement needs to ensure that treasury-related revenue and disbursement floats in the banking sector are kept at the minimum level.

5

This is achieved through lower costs of borrowing (to finance public expenditure) and higher investment returns (from surplus government cash). For a detailed discussion on cash management related issues, see the FAD Technical Manual on Modernizing Cash Management by Ian Lienert.

6

In many countries where line ministries have cash holding accounts at the central bank, the treasury does not perform daily clearing of the balances in these accounts and despite a positive balance with the central bank, the government might have to borrow from the financial markets to meet its day-to-day cash needs. Therefore, daily consolidation of cash balances is also needed even when line ministries’ accounts are held with the central bank

7

RTGS is used in advanced banking systems to settle payments as they occur.

8

This arrangement enables a particular client firm to pool together (or credit) all its sales revenues (which may be realized by many units that are distributed geographically) and cumulate all their expenditure debits into just one account with the designated bank while the latter provides retail banking services to the firm’s operational units irrespective of their location. This is aimed primarily at reducing idle cash, while ensuring that there is enough liquidity to pay for payment obligations over a foreseeable period.

9

The various types of accounts under a TSA arrangement, including the correspondent account, are defined in the next section.

10

There is no point in extending the TSA coverage if cash fungibility is not ensured, the use of cash surpluses being a prerequisite to an efficient TSA. However, the fungibility of cash should not limit the ability of the TSA correspondent (such as a trust fund) to make use of its own resources.

11

In particular, the PFM system should address the following concerns of donors to convince them to bring their funds under a TSA arrangement: (i) assurance for use of donor aid on specific projects (or non-diversion of funds); (ii) some ring-fencing to avoid liquidity problems (and ensure timely payments during execution of donor-funded projects); (iii) minimizing exposure to exchange related fluctuations/losses in the value of donor aid (particularly when the currency exchange rate regime is volatile); and (iv) reliability of controls (in managing donors’ funds) and information produced by the national PFM system.

12

The Paris Declaration of 2005 encourages the integration of donor funds into the countries’ PFM systems, which include the TSA.

13

Spending units at the same location as the ministry/department’s headquarters (i.e., the capital city) are referred here as “central units.”

14

Practical considerations in countries not having good communications facilities may require a limited number of additional bank accounts. The challenge here is how to achieve the best possible mode of centralizing government cash balances while ensuring the minimum disruption to the existing payment system if the latter were to continue on legal and/or institutional grounds.

15

For instance, in Indonesia, the line ministries’ imprest accounts—about 32,000 of them—are currently being integrated into the TSA system and balances in these accounts will be zero-balanced at end of the day. Effective procurement planning also reduces the need for imprest accounts, which are sometimes set up to pay for ad hoc procurements.

16

A centralized treasury could also have branches (e.g., local or regional treasuries).

17

A double-entry accounting system (whether on a cash or accrual basis) uses a set of linked ledger accounts. In a computerized environment, individual ledger accounts are established and managed through a treasury general ledger (TGL). The concept of a treasury general ledger (or general ledger system), that is, a system where all transactions are recorded, can fit either centralized or decentralized accounting controls and payment processing systems. The TGL can also be linked with the accounting and management information systems maintained at the agency level.

18

This can be done through the general ledger and agency-specific subsidiary ledgers of an IFMIS. If there is no IFMIS, the chart of accounts and accounting procedures used by the central payment unit and individual spending agencies should be harmonized. For example, to address this issue several Central Asian countries (e.g., Georgia and Uzbekistan) are developing a unified chart of accounts to be used by both the centralized treasury and individual spending units.

19

If an institution does not have direct access to a computerized and networked accounting system, the treasury may provide the service. On the other hand, IFMIS must include automatic controls to check that transactions are within budget authority and cash limits, and reject the commitment or payment if there is insufficient authority.

20

For instance, “the banking industry has created new products that allow depositors” access to real-time account balance information and the ability to move funds electronically” (Larson and Corinne, 2007).

21

An option is to seek competitive quotations for revenue remittance services and, drawing on them, determine the unit price per electronic transaction. This rate could then be uniformly applied to all participating banks.

22

For example, in Colombia the revenue collecting banks are allowed to retain the revenues for 15 days before remitting to the TSA.

23

Transit accounts are generally used for collecting tax revenues and zero-balance accounts are usually used for remitting nontax revenues and transferring them automatically to the TSA at designated intervals

24

In Argentina, for instance, “the government has promoted the use of debit and credit cards by offering tax incentives and by strongly promoting the use of payroll cards” (EIU, 2005, p. 16).

25

And penalties should be charged for delays in transfer of government funds to the TSA.

26

In other words, different types of cash transactions (whether receipt or disbursement of cash) passing through the same bank account may require different accounting treatments and need to be distinctively recorded through a system of linked ledger accounts.

27

The TGL module of an IFMIS, therefore, must have the following capabilities: (i) recording of all payments and all transactions with cash (transfers among accounts, transfers to deposit accounts and other investment actions, transfers to the TSA main account in the central bank, etc.); (ii) continuous tracking of cash in bank accounts; (iii) transferring cash to bank accounts outside the TSA system (e.g., petty cash, salaries, pensions, etc.); (iv) reconciliation of daily postings in the TGL and associated subsidiary ledgers with the cash movements in the TSA, including daily and monthly reconciliation of bank accounts (such as ZBAs) of line agencies; and (vi) preparing summary statements of transactions for reporting and monitoring purposes.

28

Please refer to the IMF FAD Technical Note and Manual on Conceptual Design of an IFMIS, by A. Khan and M. Pessoa.

29

Bank reconciliation is an important element of managing and accounting for government transactions through the banking system. The benefit of reconciling the bank statement is ensuring that the amount of cash reported by the treasury (from its own books) is consistent with the amount of cash shown in the bank’s records. Fiscal transparency also requires routine (normally on a monthly basis) reconciliation of bank statements with government accounting data (Manual on Fiscal Transparency, p. 55, 2007, IMF).

30

For further discussion on this issue, please refer to the Technical Manual on Modernizing Cash Management by I. Lienert (2009).

31

Options for investing idle cash balances at longer terms include: (i) interest-bearing fixed deposits of specific duration at the central bank to store cash not immediately required; (ii) interest on the treasury operational account; (iii) deposits at commercial banks; and (iv) sovereign wealth funds. The choice of approach depends mainly on how long the assets need to be retained.

32

This is vital because in some countries an unknown number of government bank accounts are opened by ministries and other government agencies and until all are included in the TSA, its structure is incomplete. Unknown or hidden bank accounts pose particular threats to the overall objectives of the TSA concept and its associated transparency benefits.

33

A start should be made by establishing businesslike arrangements between the government and the banking system. The principle that the government should earn interest on all its deposits and that it should, in turn, pay for all the banking services it receives should be seriously explored. Moreover, bank remuneration through fees instead of allowing banks to benefit through floats is more transparent and promotes competitive bidding.

Treasury Single Account: Concept, Design and Implementation Issues
Author: Israel Fainboim Yaker and Sailendra Pattanayak