Interactions of sovereign debt management with monetary conditions and financial stability

Abstract

The financial crisis dramatically altered the environment in which sovereign debt managers and central banks had to operate. The interactions of sovereign debt management (SDM) with monetary conditions and financial stability was heightened in these historically unusual circumstances.

This report discusses the implications of these interactions for central banks. It was prepared by a Study Group chaired by Paul Fisher of the Bank of England.

The report concludes that in such circumstances, or where financial systems are still developing, there is benefit in debt managers taking a broad view of cost and risk. Central banks can likewise benefit from keeping abreast of SDM activities. Recent experience confirms that medium-term strategic outcomes for the maturity structure and risk characteristics of outstanding debt do matter, for financial stability in particular. This underscores the importance of close communication among the relevant agencies, yet with each agency maintaining independence and accountability for its respective role, consistent with internationally agreed principles for sovereign debt management.