Annex 1. Fiscal Dominance over Central Bank Financial Resources
Governments have often used a variety of ways to exert fiscal dominance over central banks that may weaken the central bank’s financial position as well as undermine independence. In addition to requiring the central bank to sell foreign exchange at a subsidized price (to the government or government agency), some common ways include:
Requiring the central bank to make unusually large profit remittances to the government or remitting profits earlier than normal. In some cases, profits may have been generated artificially. For example, the central bank may be required to sell part of its FX reserves (such as long-term gold holdings) and then buy them back immediately, so that technically a revaluation reserve becomes a realized profit that can be distributed.
Directing the central bank to lend to state-owned banks, which then on-lend to loss-making state-owned enterprises, or use the funding to buy gov-ernment securities; such lending can hurt the central bank balance sheet if at below-market rates that do not adequately compensate for the riskiness of the loans.
Pressuring the central bank to take on credit risk by providing credit, or guarantees for lending, to nonfinancial corporates, without an adequate fiscal guarantee or backstop. This is occasionally done with the ostensible aim of supporting the export sector or selected sectors of the economy and in crisis times to support SMEs in particular.
Creating an SPV so that the central bank can provide funding to nonfinancial firms (whether lending directly or buying bills or commercial paper) which has a first-loss guarantee from the government but is predominantly funded by the central bank. The government relies on funding from the central bank that is provided on concessional terms rather than seeking more costly market funding.
Annex 2. Central Bank Overdraft Facilities
Legal Basis for Central Bank Financing: Requirements for Access and for Transparency
Legal Basis for Central Bank Financing: Requirements for Access and for Transparency
| Group 1 | Strict prohibitions on central bank financing within the constitution, central bank law, or other law | Examples of CBs to which this provision applies: European Central Bank and national central banks in the European Monetary Union, People’s Bank of China, Bank of Russia, Central Bank of Turkey |
| Group 2 | Provisions in the constitution, central bank law, or other law that specify context, amount, tenor and interest rate for central bank financing. | |
Legal Basis for Central Bank Financing: Requirements for Access and for Transparency
| Group 1 | Strict prohibitions on central bank financing within the constitution, central bank law, or other law | Examples of CBs to which this provision applies: European Central Bank and national central banks in the European Monetary Union, People’s Bank of China, Bank of Russia, Central Bank of Turkey |
| Group 2 | Provisions in the constitution, central bank law, or other law that specify context, amount, tenor and interest rate for central bank financing. | |
Examples of specific provisions on central bank financing for select central banks
Examples of specific provisions on central bank financing for select central banks
| Setting the limit on CB financing | Financing is limited to a proportion of estimated revenue for the fiscal year/ average revenue for three immediately preceding fiscal years. Limit is usually between 5 and 12 percent of the revenue base. Fixed nominal amount Securities purchased in primary issues are included as part of the overall limit set for CB financing |
Banco de México, Bank of Canada, Bank of Malaysia, Central Bank of Kenya, Central Bank of Morocco, Bank of Albania, Bank of Botswana, Bank of Japan Bank of Israel Bank of Malaysia, Bank of Albania (includes securities purchased through open market operations) |
| Maximum allowable tenor for loans/advances | 91 days, 120 days, 150 days, 6 months | Banco de México, Central Bank of Morocco, Bank of Israel, Bank of Canada |
| Maximum repayment period and Interest Rate | Loans must be repaid before the end of the first quarter in the fiscal year after the loan/advance is contracted Loans are collateralized by debt securities that have a maximum maturity and bear interest at market rates Interest rate on loans are set by the monetary policy committee/or interest rate applicable is the rate for banks’ refinancing |
Bank of Canada, Bank of Brazil, Bank of Malaysia Bank of Albania, Bank of Canada, Central Bank of Kenya Bank of Korea, Central Bank of Morocco |
| Provisions on the context and the process for approvals, currency, and disclosure requirements | The government has to declare that the country is in an emergency situation based on security (war or threat of war) or natural disasters for the central bank to finance budgetary expenditures. | Central Bank of Dominican Republic, Central Bank of Chile |
| Loans require approval of the central bank board/loans carry a written loan agreement executed between the central bank and the government/loans require Parliamentary approval. | Bank of Albania, Central Bank of Brazil, Banco de México, Bank of Korea | |
| Granting of loans (or waivers for amounts above the legal limit) should not conflict with monetary policy objectives / the central bank endeavors in periods of monetary expansion to restrict credit to government and to contract the outstanding amount, as warranted. | Bank of Albania, Bank of Korea, Central Bank of Morocco | |
| Where the legal limit is breached the central bank submits to the Parliament a report outlining the causes and remedies/ any use of CB financing above the legal limit is subject to agreement between central bank and Minister of Finance, and such agreement is published in gazette within 15 days of the agreement. | Bank of Albania, Bank of Botswana | |
| The central bank publishes information on investments in securities issued or guaranteed by the government in its monthly balance sheet. | Bank of Canada | |
| Loans are made only in domestic currency. | Bank of Albania |
Examples of specific provisions on central bank financing for select central banks
| Setting the limit on CB financing | Financing is limited to a proportion of estimated revenue for the fiscal year/ average revenue for three immediately preceding fiscal years. Limit is usually between 5 and 12 percent of the revenue base. Fixed nominal amount Securities purchased in primary issues are included as part of the overall limit set for CB financing |
Banco de México, Bank of Canada, Bank of Malaysia, Central Bank of Kenya, Central Bank of Morocco, Bank of Albania, Bank of Botswana, Bank of Japan Bank of Israel Bank of Malaysia, Bank of Albania (includes securities purchased through open market operations) |
| Maximum allowable tenor for loans/advances | 91 days, 120 days, 150 days, 6 months | Banco de México, Central Bank of Morocco, Bank of Israel, Bank of Canada |
| Maximum repayment period and Interest Rate | Loans must be repaid before the end of the first quarter in the fiscal year after the loan/advance is contracted Loans are collateralized by debt securities that have a maximum maturity and bear interest at market rates Interest rate on loans are set by the monetary policy committee/or interest rate applicable is the rate for banks’ refinancing |
Bank of Canada, Bank of Brazil, Bank of Malaysia Bank of Albania, Bank of Canada, Central Bank of Kenya Bank of Korea, Central Bank of Morocco |
| Provisions on the context and the process for approvals, currency, and disclosure requirements | The government has to declare that the country is in an emergency situation based on security (war or threat of war) or natural disasters for the central bank to finance budgetary expenditures. | Central Bank of Dominican Republic, Central Bank of Chile |
| Loans require approval of the central bank board/loans carry a written loan agreement executed between the central bank and the government/loans require Parliamentary approval. | Bank of Albania, Central Bank of Brazil, Banco de México, Bank of Korea | |
| Granting of loans (or waivers for amounts above the legal limit) should not conflict with monetary policy objectives / the central bank endeavors in periods of monetary expansion to restrict credit to government and to contract the outstanding amount, as warranted. | Bank of Albania, Bank of Korea, Central Bank of Morocco | |
| Where the legal limit is breached the central bank submits to the Parliament a report outlining the causes and remedies/ any use of CB financing above the legal limit is subject to agreement between central bank and Minister of Finance, and such agreement is published in gazette within 15 days of the agreement. | Bank of Albania, Bank of Botswana | |
| The central bank publishes information on investments in securities issued or guaranteed by the government in its monthly balance sheet. | Bank of Canada | |
| Loans are made only in domestic currency. | Bank of Albania |
References
Adrian, Tobias, Christopher Erceg, Marcin Kolasa, Jesper Linde, Pawel Zab-czyk, and Jinping Zhou. 2020. “A Quantitative Model for the Integrated Policy Framework.” IMF Working Paper 20/122, International Monetary Fund, Washington, DC.
Arena, Marco, Rudolfs Bems, Nadeem Ilahi, Jaewoo Lee, William Lindquist, and Tonny Lybek. 2021. “Asset Purchase Programs in European Emerging Markets.” IMF Departmental Paper 21/xx, International Monetary Fund, Washington, DC.
Arslan, Yavuz, Mathias Drehmann, and Boris Hofmann. 2020. “Central Bank Bond Purchases in Emerging Market Economies.” BIS Bulletin No. 20, Bank for International Settlements, Basel, Switzerland.
Basu, Suman S., Emine Boz, Gita Gopinath, Francisco Roch, and Feliz Unsal. 2020. “A Conceptual Model for the Integrated Policy Framework,” IMF Working Paper 20/121, International Monetary Fund, Washington, DC.
Bernanke, Ben. 2012. “Five Questions about the Federal Reserve and Monetary Policy.” Speech at the Economic Club of Indiana, Indianapolis, October 1.
Bank for International Settlements (BIS). 2020. Annual Economic Report. Chapter 2, pp. 51–54. Basel, Switzerland.
Blanchard, Olivier. 2004. “Fiscal Dominance and Inflation Targeting: Lessons from Brazil.” NBER Working Paper No. 10389, National Bureau of Economic Research, Cambridge, MA.
Bordo, Michael and Mickey Levy. 2020. “Do Enlarged Fiscal Deficits Cause Inflation: The Historical Record.” NBER Working Paper No. 28195, National Bureau of Economic Research, Cambridge, MA.
Brooks, Robin, and Jonathan Fortun. 2020. “GMV-COVID-19 and EM Policy Space.” Washington, DC: Institute of International Finance.
Cagan, Phillip. 1956. “The Monetary Dynamics of Hyperinflation.” In Studies in the Quantity Theory of Money, edited by Milton Friedman, 25–117. Chicago: University of Chicago Press.
Catao, Luis, and Marco Terrones. 2005. “Fiscal Deficits and Inflation.” Journal of Monetary Economics 52 (3): 529–54.
Cecchetti, Stephen G., Tommaso Mancini-Griffoli, Machiko Narita, and Ratna Sahay. 2020. “US or Domestic Monetary Policy: Which Matters More for Financial Stability?” IMF Economic Review 68 (1): 35–65.
Celasun, Oya, Gaston Gelos, and Alessandro Prati. 2004. “Obstacles to Disinflation: What is the Role of Fiscal Expectations?” Economic Policy 19 (40): 442–81.
Curcuru, Stephanie E., Steven B. Kamin, Canlin Li, and Marius Rodriguez. 2018. “International Spillovers of Monetary Policy: Conventional Policy vs. Quantitative Easing.” International Finance Discussion Papers No. 1234, Board of Governors of the Federal Reserve System, Washington, DC.
Del Negro, Marco, and Christopher Sims. 2015. “When Does a Central BankHs Balance Sheet Require Fiscal Support?” Journal of Monetary Economics 73C: 1–19.
Fischer, Stanley, Ratna Sahay, and Carlos Vegh. 2002. “Modern Hyper and High Inflations.” Journal of Economic Literature XL: 837–80.
Fratto, Chiara, Brendan Harnoys Vannier, Borislava Mircheva, David de Padua, and Helene Poirson Ward. 2021. “Unconventional Monetary Policies in Emerging Markets and Frontier Countries.” IMF Working Paper 21/14, International Monetary Fund, Washington, DC.
Garbade, Kenneth. 2014. “Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks.” Federal Reserve Bank of New York Staff Report No. 684, New York, New York.
Hall, Robert E., and Ricardo Reis. 2015. “Maintaining Central-Bank Financial Stability under New-Style Central Banking,” NBER Working Paper No. 21173, National Bureau of Economic Research, Cambridge, MA.
Hamilton, Alexander. 1790. “Second Report on the Further Provision Necessary for Establishing Public Credit Report on a National Bank.”
Hauser, Andrew. 2020. “Seven Moments in Spring: Covid-19, Financial Markets and the Bank of England’s Balance Sheet Operations.” Speech at the Bank of England, June 4.
Hofman, David, and Gunes Kamber. 2020. “Unconventional Monetary Policy in Emerging Market and Developing Economies.” IMF MCM Special Series on COVID-19, September, International Monetary Fund, Washington, DC.
Hofmann, Boris, Ilhyock Shim, and Hyun Song Shin. 2020. “Emerging Market Economy Exchange Rates and Local Currency Bond Markets amid the COVID-19 Pandemic.” BIS Bulletin No. 5, Bank of International Settlements, Basel, Switzerland.
International Monetary Fund IMF. 2020a. “Debt Management Responses to the Pandemic.” MCM Special Series on COVID-19, Washington, DC.
International Monetary Fund IMF. 2020b. Global Financial Stability Report, April, and GFSR Update, June, Washington, DC.
International Monetary Fund IMF. 2020c. Global Financial Stability Report, Washington, DC, October.
International Monetary Fund IMF. 2020d. “Towards an Integrated Policy Framework,” IMF Policy Paper, October No. 20/046, Washington, DC.
International Monetary Fund IMF. 2019. Regional Economic Outlook: Sub-Saharan Africa. Washington, DC, October.
Jacome, Luis, Marcela Matamoros-Indorf, Mrinalini Sharma, and Simon Townsend. 2012. “Central Bank Credit to the Government: What Can We Learn from International Best Practices?” IMF Working Paper 12/16, International Monetary Fund, Washington, DC.
Kganyago, Lesetja. 2020. “The South African Reserve Bank, the Coronavi-rus Shock, and ‘the Age of Magic Money.’” Lecture at the Wits School of Governance, June 18.
Meltzer, Allan. 2003. A History of the Federal Reserve. Chicago: University of Chicago Press.
Reinhart, Carmen M., and M. Belen Sbrancia. 2015. “The Liquidation of Government Debt.” Economic Policy 30: 291–333.
Sargent, Thomas, and Neil Wallace. 1981. “Some Unpleasant Monetarist Arithmetic.” Federal Reserve Bank of Minnesota Quarterly Review 5: 1–17.
Sever, Can, Rohit Goel, Dimitris Drakopoulos, and Evan Papageorgiou. 2020. “Effects of Emerging Market Asset Purchase Program Announcements on Financial Markets During the COVID-19 Pandemic.” IMF Working Paper 20/292, International Monetary Fund, Washington, DC.
Sims, Christopher. 2016. “Fiscal Policy, Monetary Policy, and Central Bank Independence.” Economic Symposium at Jackson Hole.
Stein, Jeremy. 2012. “Evaluating Large-Scale Asset Purchases.” Speech at the Brookings Institution, Washington, DC, October 11.
Stella, Peter. 2002. “Central Bank Financial Strength, Transparency, and Policy Credibility.” IMF Working Paper 02/137, International Monetary Fund, Washington, DC.
Turner, Adair. 2015. “The Case for Monetary Finance: An Essentially Political Issue.” Keynote speech, 16th Jacques Polak Annual Research Conference, Washington, DC.
Woodford, Michael. 1996. “Control of the Public Debt: A Requirement for Price Stability?” NBER Working Paper No. 5684, National Bureau of Economic Research, Cambridge, MA.
The COVID-19 pandemic has led to substantial new spending needs (health sector, economic and social support) while government revenues have weakened. This has inevitably increased financing pressures.
There are strong theoretical grounds for why weak public finances may limit the ability of central banks to achieve their price stability mandate, including in work by Sargent and Wallace (1981), Woodford (1996), Blanchard (2004), and Sims (2016).
Hall and Reis (2015) provide an insightful analytical framework for assessing the balance sheet risks arising from various components of central bank asset purchase programs—including from maturity mismatch, credit risk, and exchange rate risk—with applications focused on the US Federal Reserve and European Central Bank.
Financial repression can also take the form of statutory restrictions on financial institutions that reduce the government’s cost of financing its deficit. These forms of financial repression act as a tax on the financial system and hence crowd out private demand.
Alexander Hamilton, the first US Secretary of the Treasury, warned against printing money to finance budget deficits in his report on public credit (1790): “The stamping of paper is an operation so much easier than the laying of taxes that a government in the practice of paper emissions would rarely fail in any such emergency to indulge itself too far.”
This interpretation of debt monetization is consistent with that of Bernanke (2012), who noted “Monetizing the debt means using money creation as a permanent source of financing for government spending,” and similarly of Turner (2015) in his Mundell-Fleming lecture: “Monetary financing is defined as running a fiscal deficit ... by an increase in the monetary base—that is, of the irredeemable fat non-interest-bearing monetary liabilities of the government/central bank.” Even so, the use of these terms is far from uniform. A bit more loosely, monetary financing can be regarded as the acquisition of claims by the central bank on the government that—in concert with fiscal dominance that restrains policy rate adjustment—results in excessive money growth and inflationary pressure (that is, relative to levels consistent with price stability).
Some qualifications are required if markets are highly illiquid (see the discussion in Chapter 6).
The authors’ analysis of the benefits and risks of EMDE asset purchases aimed at providing macroeconomic stimulus draws on Hofman and Kamber (2020).
Of course, to the extent that EMDE central banks purchase private assets as well as government bonds, they would also be exposed to credit risk (and potentially heightened political economy challenges).
In countries in which there is a high level of dollarization, pressures may arise if residents seek to switch from domestic currency holdings to assets denominated in dollars (or other foreign currencies).
Celasun, Gelos, and Prati (2004) draw upon disinflation episodes across a range of EMDEs to highlight how expectations about the fiscal stance play a key role in influencing inflation expectations.
Long-term zero-coupon securities clearly would not meet this definition, even if notionally marketable.
Bordo and Levy (2020) recount how the first central bank, Sweden’s Riksbank, came under pressure to finance large wartime expenditures by printing money in the mid-18th century, leading to a rapid runup in prices. Also see Fischer, Sahay, and Vegh (2002).
Alternatively, the central bank may be compelled to lend to state-owned banks or nongovernment entities at subsidized interest rates.
This contrasts with the remittance of part of realized profits, which is standard practice.
Sargent and Wallace (1981) and Catao and Terrones (2005) discuss how persistent large budget deficits tend to lead eventually to monetary financing and inflation. The risks of monetary financing and inflation appear particularly high for countries with a significant level of dollarization (and consequently relatively small domestic-currency monetary base) and high real interest rates.
The high inflation monetized a substantial amount of government debt (Reinhart 2015), as well as generated seigniorage revenues from a much faster rise in the monetary base than consistent with price stability.
The IMF MCM Special Series on COVID-19 note “Debt Management Responses to the Pandemic” discusses the importance of institutional coordination between the government and central bank.
A foreign exchange (FX) loan or grant to the government, followed by sale of the FX to the central bank, would involve a central bank asset (FX) matched by a credit to the government’s account at the central bank, but is not considered direct financing.
As we discuss subsequently, some direct financing may be appropriate in periods of serious financial distress to support market functioning, but with an aim to achieving price and financial stability objectives rather than to lower the cost of government borrowing.
Maastricht Treaty clause 104 (subsequently re-numbered). The wording is kept simple as it simply defines (and prohibits) direct credit, without discussing the consequences.
Here “monetary financing” can be regarded as the acquisition of claims by the central bank on the government that—in concert with fiscal dominance that restrains policy rate adjustment—results in excessive money growth and inflationary pressure (i.e., relative to levels consistent with price stability).
Legislation may provide for central bank recapitalization at a certain threshold, but may not determine the quality of capital sufficiently well, or may simply be ignored by the government.
It is clear that direct credit to government is only one aspect of a weak policy framework adopted by the authorities. In Zimbabwe, an earlier episode of monetary financing led to the domestic currency being temporarily abandoned in 2008, as inflation reached several million percent.
A number of emerging market economies have experienced extremely high bouts of inflation, including Argentina (1979–81 and other periods in the 1980s); Bolivia 1983–85; Peru 1988–90; Yugoslavia 1988–89; Angola (1990s); and many less extreme cases, for example, Iraq (1993–94). See Fischer, Sahay, and Vegh (2002).
Annex 1 provides additional illustrations of fiscal dominance over central bank balance sheet policies (for example, directed lending and guarantees) that tend to weaken both the financial position and independence of central banks.
IMF October 2019 Regional Economic Outlook: Sub-Saharan Africa explores the problem of government arrears. A few countries have recently used central bank overdraft financing to pay down arrears.
An “effective policy rate” means a policy rate that the central bank is willing and able to implement in its monetary operations. A rate that is labelled as the “policy rate” but is not used in such a way as to impact the market is not an effective rate.
In a dysfunctional market, prices may be unusually low (and yields correspondingly high), and in a thin market there may not be a clearly observable market price. The central bank may need to determine an appropriate price taking into account its policy rate and yields during recent periods in which markets were relatively stable.
This paper does not explore central bank purchases of private sector securities, as the focus is on the risks of central bank financing of the government. The purchase of private securities would typically entail additional risks, including credit risk and heightened political economy pressures (though it is worth noting that many EMDEs do not have significant private sector securities markets).
While central bank asset purchases may improve market functioning in stressed environments, there are longer-term risks, including of moral hazard and of impeding market development (for example, of hedging markets).
The asset purchases must be made in the domestic bond market to address market dysfunction. Central banks should not attempt to support international bond markets, and doing so could risk significant losses of their (limited) FX reserves. The domestic government funding market is typically denominated in the domestic currency, though some securities may be FX-linked.
See IMF October 2020 GSFR, Chapter 2.
See, for instance, BIS Annual Economic Report Box II.C (2020) and Sever and others (2020).
As in Japan since 2001, and in the United States and some European countries since 2008.
As a first step, the nonbank investors selling government securities will receive a credit on their current account balance at a commercial bank, instead of holding a longer-maturity claim on the government—a maturity and credit-risk transformation. These investors are then likely to shift into other assets in search of yield (riskier than domestic government debt, though not necessarily risky), providing term funding to the real economy. Depending on the global situation, this shift may provide term funding to other economies, if investors move overseas, and so impact the exchange rate. This was arguably a side effect of the US QE in 2009, when some Asian central banks said they faced “a wall of US money” hitting their markets.
To illustrate, the Bank of Thailand’s published minutes of a special Monetary Policy Committee meeting in March 2020 explained the linkages between global risk-of sentiment and the selling of Tai government bonds by mutual funds to raise cash for redemptions, which led to a spike in yields and damage to market liquidity and functioning. The Banco de Mexico’s monetary policy statement in April 2020 explained the rationale for monetary easing (via a rate cut) coupled with other measures to address financial market distress while the Banco Central de Chile’s June 2020 monetary policy statement explained the reasons for a program of nongovernment securities purchases. (The monetary policy statements can be found on the central bank websites.)
As we have emphasized, EMDE central banks can potentially benefit from asset purchases aimed at reducing severe market stresses even if policy rates are well above zero.
See also Adrian and others (2020) and Basu and others (2020) for related modeling analysis.
The balance sheet of the US Federal Reserve expanded from about $1 trillion in September 2008 to $7 trillion by September 2020 and $8.2 trillion by mid-2021, some 38 percent of GDP; the Bank of Japan’s balance sheet is now more than 100 percent of GDP.
In a similar vein, Brooks and Fortun (2020) argued: “What makes [the Fed’s] aggressive policy response possible is the US dollar, which tends to rise in ‘risk-of’ shocks, giving policy makers confidence that demand for US assets will remain healthy, even with big increases in the supply of government paper. In effect, the Dollar is at the root of the ‘exorbitant privilege’ the United States enjoys. Unfortunately, the picture is different in emerging markets, where depreciating currencies and rising bond yields severely limit governments’ policy space.”
Governor Kganyago, South African Reserve Bank, observed in a June 2020 speech that: “There is a limit to central bank purchases, especially if you are an emerging market. The likes of Japan, the United Kingdom, and the United States can embark on quantitative easing with the knowledge that their currencies are reserve currencies and because they are reserve currencies, people will continue to hold them.”
“The trouble is that liquidity problems are not the only factor affecting the domestic bond market. There are also problems of fiscal sustainability in the mix, which requires us to act, and to communicate, with caution.” Governor Kganyago, South African Reserve Bank.
One benefit of buying government securities in the primary market, that is, in an auction in which banks and other private sector agents can participate, as opposed to central bank financing through an overdraft facility (or the creation of special securities to be placed directly with the central bank) is that the securities are in a marketable form, allowing the central bank to sell them into the market at a later stage. The primary market purchase of long-term securities, by contrast, may have no advantages compared to an overdraft: even if notionally tradable, in practice it would be very difficult for the market to price such securities.
Jacome and others (2012) provide an insightful discussion of policies that can help contain the risks of direct financing.
In principle, the rate used should be the standing credit facility rate, that is, somewhat above the monetary policy rate—underlining the purpose of the overdraft as providing a short-term cash management buffer rather than long-term financing. In practice, the deposit rate, or policy rate, is more often used.
Of course, this does contribute to some procyclicality in the funding available from the overdraft.
Bank of England press release. See also Bank of England speech, where Andrew Hauser notes (June 2, 2020) that the “Ways & Means (W&M) account sits at the very bottom of the hierarchy of tools used to meet the Government’s borrowing needs. The primary tool is gilt issuance—for many years used by the DMO to ‘fully fund’ those needs over the medium term (usually a fiscal year). Because government cash flows are not perfectly predictable, ‘rough tuning’ is achieved through the issuance of marketable Treasury Bills. And ‘fine-tuning’ is done through the money markets. The W&M exists purely as a back-up to those fine-tuning operations . . . But clearly the period of dysfunction in gilt and money markets in March and early April raised the possibility that it might be needed if all of the other alternatives were rendered ineffective.”