What does a central bank reverse repo mean?
What is a central bank reverse repo?
Today Xiaobian to give you a brief introduction!
Central bank reverse repos are transactions in which China purchases securities from primary dealers with an agreement to sell the securities back to primary dealers at a specified date in the future.
That’s when you get a bond pledged and you lend money to a commercial bank.
The main purpose is to release liquidity into the market while, of course, earning interest on repurchases.
The operation is that the central bank lends money to the commercial banks, and the commercial banks pledge the bonds to the central bank. At maturity, the commercial banks repay the money, and the bonds are returned to the commercial bank account.
The People’s Bank of China started to establish the system of primary dealers in open market business in 1998, selecting a group of commercial banks that can undertake large bond transactions as the trading objects of open market business. At present, the primary dealers in open market business include 40 commercial banks in total.
These dealers may use Treasury bonds and policy financial bonds as trading instruments to carry out open market business with the People’s Bank of China.
From the perspective of transaction varieties, the open market bond transactions of the People’s Bank of China mainly include repo transactions, cash transactions and the issuance of central bank bills.
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