New York Fed Conference Explores Treasury Repo Plan, No Program Announced
by Maisie Morrison · BlockonomiTLDR
Table of Contents
- Treasury officials discussed lending excess cash into the overnight repo market at a New York Fed conference on September 22.
- No program, dollar amount or timetable was announced at the event.
- Treasury expects its cash balance to hit $950 billion at the end of September and about $1.05 trillion in late October.
- An advisory committee estimated the government might earn just 0 to 2 basis points and urged more study.
- Any effect on Bitcoin would be indirect, with the price near $83,231, down 3.04% in 24 hours.
The U.S. Treasury is weighing whether to lend some of its extra cash into the overnight repo market. The idea came up at a conference hosted by the New York Fed on September 22.
Treasury did not announce a program, a dollar amount or a start date. Officials and market participants only discussed the concept.
The event was the 12th annual U.S. Treasury Market Conference. It is co-hosted by the Treasury, the Federal Reserve Board, the New York Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Reuters reported that several private-sector panelists welcomed the idea. The Treasury Borrowing Advisory Committee first looked at it in May and asked for more study.
How the Treasury Repo Plan Would Work
The Treasury General Account, or TGA, holds the government’s cash at the Federal Reserve. The repo market is where firms borrow cash overnight using Treasury securities as collateral.
Under the idea, Treasury would lend some TGA cash overnight against Treasury securities. Money would leave the TGA, and bank reserves held at the Fed would rise.
Treasury would earn the repo rate on that lending. The Fed, however, would have to pay interest on the extra reserves.
Because of this, the net gain for the government depends on the gap between those two rates. The plan involves Treasury lending cash, not the Fed buying bonds.
Treasury’s August cash plan expects a balance of $950 billion at the end of September. It said the account could reach about $1.05 trillion, give or take $50 billion, in late October.
Those figures reflect the government’s payment needs. Treasury has not set aside any of that money for repo lending.
The committee’s May report estimated the government might earn only 0 to 2 basis points on excess cash while reserves stay ample. It called the likely benefits marginal and recommended more design work.
What It Could Mean for Bitcoin
Roberto Perli, who manages the Fed’s System Open Market Account, spoke at the conference. He said overnight money-market rates had averaged slightly below the rate paid on reserves.
That suggests bank reserves remain at the higher end of the Fed’s ample range. Perli also said about $400 billion in net Treasury bill issuance before the Fed’s August purchase decision put only very modest pressure on repo rates.
If Treasury adopted the plan and it made short-term borrowing cheaper, it could eventually improve conditions for riskier assets. Bitcoin, however, is several steps away from the actual transaction.
Higher bank reserves alone do not mean cheaper funding or new demand for Bitcoin. None of the Treasury or Fed research measured any effect on crypto prices.
The first real test would be a formal Treasury decision with set terms. After that would come actual lending volumes and visible changes in repo rates and reserves.
For now, Bitcoin is trading at about $83,231. It is down 3.04% over the past 24 hours but up 9.01% over the past week.