AGENCE FRANCE TRESOR is tasked with managing the government debt and cash positions under the most secure conditions in the interest of the taxpayer.
|> Cash management > Main figures > Performance|
Ensuring continuous financing for the State: maintaining a credit balance on the State’s single account by adapting to the liquidity situation in the euro area.
The State’s single account is closely monitored
The State’s cash holdings are centralised in a single account, called the “Treasury Account” that is used to record the balance of all of the transactions executed by the approximately 5,000 government accountants, who each manage one or more transaction accounts.
At 31 December 2015, there were 6,809 transaction accounts.
In its capacity as the State’s banker, the Banque de France centralises these transactions in real time.
The transactions posted to the State’s account correspond to:
AFT ensures that the State’s cash position is always adequate to settle the financial transactions posted to the Treasury Account under the most secure conditions. For this purpose, AFT monitors the execution of flows into and out of the single Treasury account with the Banque de France in real time. The average daily volume of these flows came to €22.3 billion in 2015.
Proactive cash management has been adapted to the environment of persistently low yields in the euro area
Temporary cash surpluses on the Treasury Account are invested on the interbank market to ensure good management of public monies. These investments take the form of deposits or repurchase agreements involving government securities when the return offered and the risk profile of the counterparty compare favourably to the terms offered by the Banque de France for holding the cash. To ensure maximum security, AFT makes forecasts every day to determine the amount it invests.
In 2014, the environment was not very favourable for investing surplus cash and the amounts invested stood at €19.9 billion on average, for an annual total of some 2,000 transactions with counterparties.
The environment continued to be unfavourable for such investments in 2015. The benchmark rate for the interbank market in euros (Euro Overnight Index Average - EONIA) averaged -0.106% in 2015, and stood at -0.159% in the last quarter.
These negative rates were a reflection of abundant liquidity, which reduced banks’ appetite for the loans offered by AFT. The average amount invested stood at €20.6 billion in the first half of the year and at €15.8 billion in the second half. A total of nearly 3,500 transactions were carried out with counterparties during the year.
Low yields meant that auctions generated large issue premiums when off-the-run securities were tapped (see page 19, “Description of the issue premium and discount mechanism and its effects in 2015”).
AFT adapted its strategy to the circumstances. Additional cash resources from issue premiums made it possible to reduce short-term debt by €22.6 billion between the end of 2014 and the end of 2015. This reduction helped adjust cash holdings to market conditions while cutting the State’s exposure to interest rate risk.
Negative short-term yields meant that the State’s cash holdings generated an expense of €59 million in 2015. Cash holdings that are not invested are kept on deposit on the Treasury Account with the Banque de France. Proactive management aimed at investing cash holdings for a higher return than the Banque de France deposit rate produced savings of €11 million in 2015.
Treasury correpondents’ deposits provide a stable source of funding
Entities that are required or authorised to deposit their cash holdings on the Treasury Account are called Treasury correspondents. The amounts deposited on 31 December 2015, excluding “Invest for the Future” accounts, stood at €100.8 billion. These funds are a significant and stable source of cash for the Government.
Transactions on Treasury correspondents’ accounts have a direct impact on the single Treasury Account. AFT oversees the daily stream of advance notifications of cash transactions from Treasury correspondents, which enables it to determine the settlement dates and amounts of transaction flows posted to the Treasury account as accurately as possible. More specifically, local authorities and government-funded institutions are required to notify AFT of any financial transaction amounting to more than €1 million by 4pm on the previous day. In 2015, the percentages of large value transactions notified in advance stood at 98% for local authorities and government-funded institutions. These results are slightly better than the performance targets set out in the 2015 Budget Act.
The “super-validation” system was introduced in 2011. It enhances the security of the State’s cash management. The system allows the AFT to delay debits initiated by Treasury correspondents until the following day if the debits are more than €1 million and were not notified the previous day. AFT may authorise an immediate debit, despite the failure to comply with the notification rules, if the transaction does not entail any risk for the balance on the single Treasury account. The transaction is said to be “super-validated” in this case. In 2015, 389 transactions were “super-validated” which represents only a fraction of total flows and demonstrates the fact that government entities are highly disciplined.
1 Under the terms of the Decree on government budget and accounting management of 7 November 2012, most public sector entities are required to deposit their funds with the Treasury. This requirement applies to local authorities, government-funded institutions and hospitals. The Decree has been in force since 30 June 2014.
MAJ : 14 April 2017