Talk:Open market operation

Comments

I don't see what's the point of the narrow banknote focus of this article. From the figures below it looks like "physical cash" is only about 11% of M2. When the Fed talks about open market operations they talk about M2 or M1, not about banknotes.

The "monetary targeting" part is confused. Targeting the money supply was done under Volker. Now we seem to be targeting interest rates. The Fed could also target inflation. These are not the same thing!

What's gold got to do with it? This is not the 1920's. Let's please bring this article up to date.

Also "has stated famously" and similar phrasing seems POV. What's wrong with just having "stated"?

from Money supply

In the U.S., as of July 28, 2005, M1 was about $1.4 trillion, M2 about $6.5 trillion, and M3 about $9.7 trillion. If you split all of the money equally per person in the United States, each person would end up with roughly $30,000 ($9,700,000M/300M). The amount of actual physical cash M0 was $688 billion in 2004,

Gold is relevant to this article for two reasons. Firstly central banks own a lot of gold. Secondly many of the articles that discuss the gold standard reference this article about Open Market Operations. This article needs to be general enough to remain meaningful in the context of all types of monetary policy not just "inflation targeting". Terjepetersen 11:33, 25 January 2006 (UTC)

As to the recent edits. They don't reduce clarity and make the topic less accessible. I am about to roll them back again but I am open to discussion on why the changes are seen as necessary. Terjepetersen 11:33, 25 January 2006 (UTC)

Please check Fed references (on the page)

This article should be about actual open market operations, not about some theoretical ideal open market operations that you'd like to see. The Fed refences are very clear (if a bit long): the securities purchased are T-bills and T-bonds, US agencies, and mortgage backed securities. There are very clear records of how much was done on what day and rate. Foreign currencies are transacted occasionally but they are dealt with via a different mechanism (involving the Treasury along with the Fed) and records kept elsewhere.

Gold is not involved these days. Neither are banksnotes! Everything is done by crediting or debiting a "reserves" account - i.e. it's all electronic. By focusing on banknotes and gold, this article is just plain wrong, as it relates to current Fed practice.

That said, I'd be very open to see how the Bank of England does it, the ECB, etc. or even some historical info (but the Fed started in the early 1920's, which really wasn't a proper gold standard).

I'll ask some economists to check this if you don't mind. Edit by Smallbones

I think that the section on other possible goals and targets for open market operations are essentially OK -- it just needs to be made clear that those are historical or theoretical considerations and that "Open market operation" is not usually used to refer to these kinds of adjustment, but to instruments that central banks use to smooth/adjust interest rates. -- Marcika 18:58, 25 January 2006 (UTC)

You seem determined to narrow the article to how "open market operations" occur in the USA in the year 2006. Why? I for one don't live in the USA. I also have an interest in history. So whilst the conduct of the US Federal Reserve is interesting it is merely one of many examples of central banks that use open market opertions. The article should be general in nature. Open market operations were used in the past in different ways and in lots of places besides the USA. To try and limit the scope of the article to how things are today or how they are in the USA is too narrow. Terjepetersen 21:21, 25 January 2006 (UTC)

If you look at my edit, you'll find that all the information I added refers to the European Central Bank. I looked that information up because I thought that the article was too US-focused as well. Nonetheless I think that the most relevant definition of open market operations are the current ones -- and since the Fed and the ECB govern the world's largest economies, I think their approaches deserve a prominent place (although not necessarily in the intro section).

On another point, I noticed that you added "included in M0 is money held by private banks in an account with the central bank" and that therefore M0 would change through open market operations. I strongly doubt these statements. Could you provide a citation for them? -- Marcika 23:25, 25 January 2006 (UTC)

I too think history and other countries should have a place here. I'd especially like to see Bank of England and Bank of Japan procedures added. About the only things I know about US Fed history are 1923 start(?), and intro of reverse repos (vs. matched sales) in 2003 (minor - but an interesting legal dance).

Marcika, my apology. My comment was intended for Smallbones. As to a citation of M0 including central bank deposits try the definition of M0 at the following link. http://www.snb.ch/e/welt/glossary/m.html Terjepetersen 10:12, 26 January 2006 (UTC)

Does anyone have a link on where to find relevant information on the open market operations? For example, if someone wants to find out how much money is created through open market operations in a given year, how will they find out? Also, how much is typically destroyed? ", it may permanently create money by the outright purchase of securities. Very rarely will it permanently destroy money by the outright sale of securities." How much is created and how much is destroyed per year? —The preceding unsigned comment was added by 68.100.18.27 (talk) 03:41, 6 December 2006 (UTC).

Confusion between M2 and monetary base

The statistic that banknotes are less than 10% of M2 is true but misleading given the context of the rest of the paragraph. The exchangeability of concern is that between commercial bank deposits at the central bank and banknotes. So the correct statistic would be what proportion of monetary base is banknotes and what proportion is deposits at the central bank. I don't know that statistic, but I do know that the M2 statistic is not strictly speaking the correct one to mention here. I propose to delete the M2 sentence. —Preceding unsigned comment added by 131.111.1.66 (talk) 11:12, 4 August 2009 (UTC)

On second thoughts, just adding a carriage return does the trick and avoids the confusion. There are now two paragraphs and not one. —Preceding unsigned comment added by 131.111.1.66 (talk) 11:15, 4 August 2009 (UTC)

Note on "POMO" redirect

There should be a note in this article explaining why the entry for POMO redirects here. 67.91.71.50 (talk) 00:01, 9 October 2009 (UTC)

The Fed funds the Federal goverment?

"In addition the open market operation is a means through which the governments of a country demand money from its central bank and then the central bank sells off treasury bills to commercial banks in a long-term basis, after which the C.B (central bank) gives out the money gotten from the selling of the treasury bills to the government for project financing"

Is this true? What's the mechanism by which the funds are transfered? Cite?Afuhz (talk) 02:35, 27 August 2010 (UTC)

Repo definition contradiction

In this item: When the actual Fed funds rate is higher than the target, the New York Reserve Bank will usually increase the money supply via a reverse repo (effectively lending).

This description is contradict to the definition in Repurchase agreement, where it is said that "Under a repurchase agreement ("RP" or "repo"), the Federal Reserve (Fed) buys U.S. Treasury securities, U.S. agency securities, or mortgage-backed securities from a primary dealer who agrees to buy them back, typically within one to seven days; a reverse repo is the opposite."

In the item, reverse repo is a way to lend money and buy securities. In Repurchase_agreement, reverse repo means sell securities and money in. —Preceding unsigned comment added by 69.205.177.141 (talk) 04:35, 23 February 2011 (UTC)

The central bank acts to reduce overnight rates by lending reserves against collateral which gives it a claim against the borrowing bank's obligation to 'repurchase' the collateral. This claim is recorded on the central bank's balance sheet as a reverse repo asset and the corresponding obligation is a repo liability of the borrowing bank. When overnight rates are too low, the central bank borrows from the money market, incurring a repo liability, which reduces the supply of reserves and therefore makes them more costly for other banks to borrow. Sceptical-h (talk) 15:20, 5 October 2016 (UTC)

Gold standard and open market operations

It absolutely is not true that there were no open market operations under the gold standard. This is true in Great Britain, where open market operations consisted of purchasing commercial paper, and also in the United States, where the U.S. Treasury would occasionally intervene in the market before the creation of the Fed in 1913.

During the period of the Bretton Woods agreements (1950s and 1960s), which was as much of a gold standard as any, there were plenty of open market operations. The point to retain here is that there is not a fixed amount of liquidity in the system as a ratio to gold. The ratio of deposits to gold is highly variable. Conant wrote about the non-correspondence of M1 and m2 to gold supplies way back around 1908. (He did not use M1 and M2, but that's what he meant). In any case because the supply of circulating medium has no direct correspondence to the quantity of gold (any more than it does to high powered money) one will occasionally find situations where more or less liquidity is needed and this function is provided either by a central bank (in the case of England in the late 19th c) or by near-substitutes (the U.S. treasury and various groups of private banks, in the case of the late 19th c U.S.).

I'm not going to fix this however because I'm learning over in the European Central Bank article that the expectation is to put one footnote per sentence which is, quite frankly, enough to deter me from contributing. It's not scholarly practice and it serves no useful encyclopedic function, nor have encyclopedias done that. Not even the multi-volume Palgrave Diction of Economics.

GN842 — Preceding unsigned comment added by Gn842 (talk • contribs) 03:43, 20 October 2011 (UTC)

"During the period of the Bretton Woods agreements (1950s and 1960s), which was as much of a gold standard as any..." No, if there are "degrees" of gold standard, Bretton Woods was a gold standard to a low degree. GeneCallahan (talk) 13:15, 30 April 2016 (UTC)

some serious problems

"They are the only point in the whole system with the unlimited ability to produce money. Another organization may be able to influence the open market for a period time, but the central bank will always be able to overpower their influence with an infinite supply of money." <-but they have no ability to regulate the value of that money, unless you believe in the ability to stimulate productivity, hence not true

"Under a gold standard, notes would be convertible to gold, so there would be no open market operations." <-not true either, as a glance at history prior to 1933 would show

Rest of the article is weak as well. — Preceding unsigned comment added by 173.66.244.216 (talk) 02:16, 18 March 2015 (UTC)

Loro accounts?

Shouldn't this be vostro accounts? As described, there does not seem to be a third party involved. GeneCallahan (talk) 13:07, 30 April 2016 (UTC)

"A central bank uses OMO as the primary means of implementing monetary policy"

Is this statement still accurate? I was under the impression that nowadays interest on excess reserves is the primary mechanism for implementing monetary policy. — Preceding unsigned comment added by 73.211.144.228 (talk) 03:15, 7 September 2019 (UTC)

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