Guaranteeing financial continuity: maintaining a credit balance on the State’s single account every day.
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 approximately 5,000 government accountants, who each manage one or more transaction accounts.
At 31 December 2017, there were 5,988 such 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:
- State budget transactions, such as revenue and expenditure;
- Treasury correspondents’ transactions, meaning the transactions of entities that are required to deposit their funds in the Treasury Account;
- AFT’s transactions (redemption of bonds at maturity, interest payments, investments, margin calls, etc.).
TREASURY ACCOUNT CREDITS AND DEBITS IN 2017
Source: Agence France Trésor
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 Treasury Account with the Banque de France in real time. The average daily volume of these flows came to €16.9 billion in 2017.
Proactive cash management has been adapted to the environment of persistently low yields in the euro area
AFT’s cash management relies on daily forecasts. These forecasts are used to assess the amounts needed to fund upcoming transactions to be posted to the Treasury Account.
AFT provides proactive management of the State’s cash resources to ensure sound stewardship of public monies. Temporary cash surpluses may be invested on the interbank market, if the return offered and the counterparty’s risk profile compare favourably to the terms offered by the Banque de France for holding the cash. These transactions take the form of deposits or repurchase agreements involving government securities.
Given the current accommodative monetary policy stance, abundant cash on the European interbank market means that banks are less attracted to the loans offered by AFT. This environment had already affected AFT’s investment activity back in 2016, with average volume of €10.3 billion in some 1,057 annual transactions with counterparties.
The cash glut continued throughout 2017. This had an impact on AFT’s investment activity. The average amount invested stood at €6.9 billion in the first half of the year and at €6.1 billion in the second half. A total of 500 transactions were carried out during the year.
INVESTMENT OF SURPLUS CASH IN 2017 - BREAKDOWN BY NATURE OF CASH INVESTMENT (EXCLUDING BALANCE ON THE BANQUE DE FRANCE ACCOUNT):
Source: Agence France Trésor
The decrease in outstanding short-term debt reduced exposure to interest rate risk
Low yields meant that auctions of medium-term and long-term debt securities produced issue premiums.
AFT adapted its strategy to the circumstances. Additional cash resources from issue premiums made it possible to reduce short-term debt by €7.5 billion from the end of one year to the next, thereby reducing the State’s exposure to interest rate risk.
Treasury correspondents’ deposits provide a stable source of funding
Entities that are required1 or authorised to deposit their cash holdings on the Treasury Account are called Treasury correspondents. The amounts deposited on 31 December 2017, excluding “Invest for the Future” accounts, stood at €105 billion. These funds are a cash resource for the Government.
Transactions made on Treasury correspondents’ accounts have a direct impact on the Treasury Account. AFT oversees daily reporting 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 2017, the percentages of large value transactions notified in advance stood at 98.5% for local authorities and government-funded institutions. These results are slightly better than the performance targets set out in the 2017 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. However, 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 Treasury Account. The transaction is said to be “super-validated” in this case. In 2017, 152 transactions were “super-validated” which represents only a tiny fraction of total flows and proves 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 in particular to local authori¬ties, government-funded institutions and hospitals. The Decree came into force on 30 June 2014.