DANMARKS NATIONALBANK

Transcription

1 DANMARKS NATIONALBANK BREAKOUT SESSION 1: POLICY COORDINATION: FISCAL, MONETARY AND DEBT Ove Sten Jensen, Head of Government Debt Management Department, Danmarks Nationalbank, May Berlin, Germany

2 2 Introduction Objectives for government debt policy Coordination between debt policy, fiscal policy and monetary policy Guidelines for debt management in light of the financial crises Conclusion

3 3 Objectives in Danish central government debt management Primary objective: Cover the central government financing requirement at the lowest possible long term borrowing costs, while taking the degree of risk into account Secondary objectives: Support a well functioning domestic financial market Facilitate the central government s access to financial markets in the longer term The importance of the secondary objectives has been emphasized during the financial crises Objectives in line with other countries No specific direct link to financial stability and monetary policy

4 4 Structure of DMO Meetings quarterly with Ministry of Finance about overall debt strategy (link to fiscal policy) Division in front-, middle- and back-office of DMO Tasks are undertaken independently of other Central Bank activities Ministry of Finance National Audit Office of Denmark Front Office Sales of securities Buy-backs Swaps Government Debt Management at Danmarks Nationalbank Middle Office Government debt policy Loan strategy Risk management Back Office Settlement Bookkeeping Accounting Danmarks Nationalbank s auditors Audit Government Debt Management on behalf of national Audit Office of Denmark

5 5 Objectives for Danmarks Nationalbank as monetary policy authority Main objectives Stable prices, low inflation. Implemented through fixed exchange rate policy against the euro (peg) Safe payments. (Safe payments systems, issuing banknotes and coins) A stable financial system. Overseeing financial stability

6 6 Domestic and foreign funding rules Agreement between central bank and Danish government Describes the framework for central government funding and supports the separation of fiscal and monetary policy 1. Domestic funding rule CG borrows in DKK to finance the financing requirement given by the budget deficit and redemptions on domestic debt DMO is able to pre-fund No monetary financing 2. Foreign funding rule CG raises foreign loans to support sufficient foreign exchange reserves (defend the DKK-peg)

7 7 Organisation of Financial Markets in Danish Central Bank Board of Governors Financial Markets Statistics Economics Financial Stability Macroprudential Policy MAP Risk Management Central Bank Government Debt Management DMO Different tasks in Financial Markets Before the crises most focus towards different external partners (fx MOF, Financial Supervision) After the start of the financial crisis more interaction across in Financial Markets and with external counterparties. New tasks More policy interaction between DMO and Economics (Monetary policy)

8 Practical coordination between fiscal policy, monetary policy and debt management 8 The enlarged coordination during the financial crises builds on transparent and explicit goals for the different tasks DMO with Financial Stability and MAP DMO with Reserve Management DMO with Monetary Policy

9 9 Coordination between Financial Stability/MAP and Debt Management The buffer on the central government account in Central Bank raised during the financial crises to cope with higher financial volatility Issuance in 30 year bonds and inflation linkers to support the big institutional investor base in Denmark and facilitate their ALM DMO is re-lending to the Danish bad bank company. Costs with handling are covered by financial sector Coordination about the regulation influencing the securities markets (Short selling; MIFID; Tobin tax; CRA-regulation; CRD IV; Solvency ll)

10 10 Coordination between Debt management and FOREX reserve management Debt Management (DMO) was in 1991 moved to the Central Bank to support better coordination and develop financial skills DKK has been pegged to DM/Euro as a cornerstone in the macroeconomic policy since 1982 natural coordination Fiscal and Monetary Policy DMO borrows only in foreign currency to adjust FOREX-reserves. Defend peg in and have a buffer to support USD-shortage in banking sector i. Currency is relend to Central Bank ii. Hedging on market conditions FOREX exposure between DMO and Central Bank. Market risk looked at consolidated DMO and Central Bank iii. FOREX-reserves substantial up , with flight to quality and foreign investors buying DKK government bonds Monetary policy rates now below ECB (indirect link debt and monetary policy)

11 11 Debt Management and Monetary Policy Tasks separated through the funding rules DMO has during the crises build up the cash buffer in Central Bank (10% GDP) More liquidity transfer to the money market from Central Bank (Coordinated approach) The Danish Central Bank has not operated in Danish Government Bond Market Central Bank surplus transferred to the Government Coordination respects different tasks and reflects common understanding of overall macroeconomic goals

12 12 The coordination during the crises Financial and Debt Crises Market failures in some Government Bond Markets a need for coordination Central Bank operations in government bond markets and exit strategies informal or formal coordination The Stockholm Principles point at the need for coordination

13 13 Concluding remarks Important to be clear on the different institutions objectives and tasks The Danish experience has been that more coordination is beneficial during a financial crises Market failures increase the need for extraordinary measures in debt management, financial stability, fiscal and monetary policy The mandate of debt management should be interpretated broader during the crises The different players need to understand each other

14 DANMARKS NATIONALBANK 14 THANK YOU!