(Adds comments on cash holdings, background)
By Jason Lange
WASHINGTON Aug 6 The U.S. Treasury wants to
increase its daily cash holdings, a measure that would help
Washington pay its bills during a crisis, a senior official said
If adopted, the new policy would help the government in the
event an emergency shut down markets and left Washington unable
to borrow money to pay creditors and other obligations.
"Holding more cash on hand is a prudent measure," Treasury
Assistant Secretary Matt Rutherford said in a news conference.
He said the measures would help public finances weather
events like the Sept. 11, 2001 attacks or 2012's Superstorm
Sandy, both of which disrupted Wall Street trading. Washington
borrows vast sums in weekly auctions to pay its bills.
Investors who met with Treasury officials on Tuesday urged
the government to increase its daily cash holdings to around
$500 billion. That would be enough to cover about 10 days worth
A change in policy, however, would not buy the government
any additional time if it runs into a legal limit on borrowing
Current law will limit the amount of cash Treasury can hold
when a cap on federal borrowing becomes binding again in March
2015. The U.S. government suspended the debt ceiling in February
of this year.
Even if the Treasury changes its cash management policy, it
would be obligated to reduce its daily balance to around $33
billion in March, Rutherford said. The Treasury held about $66
billion in cash on Monday, a typical level in recent months.
Rutherford said a decision had not been made yet on the
policy, and that officials would be studying the matter.
Rutherford also announced the United States will buy back
debt in the coming quarter for the first time since 2002 to make
sure its computer infrastructure is adequate for any future
He stressed the buyback does not signal any current need to
buy back debt.
"Given that IT systems have changed significantly in the 12
years since the last buyback operation, Treasury believes it is
prudent to regularly test the current IT infrastructure,"
He described the upcoming buyback as a "small-scale"
Buybacks can help the Treasury manage liquidity in different
segments of the bond market when budget deficits are declining,
Rutherford wrote in a 2007 paper on buybacks that he co-authored
when he was on the staff at the Federal Reserve Bank of New
York. The paper also said buybacks can help the Treasury manage
its cash balance and smooth weekly fluctuations in Treasury bill
The tests could augur more substantial buybacks years down
the road, said Thomas Simons, a money market strategist at
Jefferies & Co. in New York.
"Why test the buyback when you won't use it at some point?"
Rutherford's comments on debt management came as the
Treasury said it would hold steady borrowing amounts for two-
and three-year maturities during the coming quarter, and that
coupon auction sizes will remain steady going forward.
(Reporting by Jason Lange; Additional reporting by Richard
Leong in New York; Editing by Paul Simao)