Reverse repurchase by the central bank refers to the trading behavior that the People's Bank of China buys securities from a primary dealer and agrees to sell the securities back to the primary dealer on a specific date in the future. Is to obtain pledged bonds and borrow money from commercial banks. The main purpose is to release liquidity to the market, and of course, at the same time, we can get interest income from repurchase. The operation is that the central bank lends money to commercial banks, and commercial banks pledge bonds to the central bank. When they mature, the commercial bank repays the funds and the bonds are returned to the commercial bank account.
In most developed countries, open market operation is the main monetary policy tool for the central bank to control the base currency and regulate market liquidity. The central bank conducts securities and foreign exchange transactions with market counterparties to achieve the goal of monetary policy regulation. China's open market operation includes RMB operation and foreign exchange operation. The foreign exchange open market operation 1994 was launched in March, and the RMB open market operation 1998 resumed trading on May 26th, with a gradually expanding scale. Since 1999, the open market operation has developed rapidly, and now it has become one of the main tools for the daily operation of the people's bank of China's monetary policy, which has played an active role in regulating the liquidity at the banking system level, guiding the interest rate trend in the money market, and promoting the reasonable growth of the money supply.
From 1998, the People's Bank of China began to establish a first-class dealer system for open market business, and selected a number of commercial banks that can undertake large-value bond transactions as trading objects for open market business. In recent years, the system of primary dealers in open market business has been continuously improved, and related management systems such as assessment and adjustment mechanism and information reporting system have been established one after another. The institutional category of primary dealers has also expanded from commercial banks to other financial institutions such as securities companies.
In terms of transaction types, China People's Bank's open market bond transactions mainly include repurchase transactions, spot bond transactions and issuance of central bank bills. Among them, repurchase transactions are divided into positive repurchase and reverse repurchase. Repurchase refers to the trading behavior that the People's Bank of China sells securities to primary dealers and agrees to repurchase securities on a specific date in the future. Repurchase refers to the operation of the central bank to recover liquidity from the market, and it refers to the operation of the central bank to put liquidity into the market when it expires. Reverse repurchase means that the People's Bank of China buys securities from primary dealers and agrees to sell the securities to primary dealers on a specific date in the future. Reverse repurchase refers to the operation of the central bank to put liquidity into the market, and it refers to the operation of the central bank to recover liquidity from the market when it expires. There are two kinds of spot trading: spot buyout and spot selling. The former is that the central bank directly buys bonds from the secondary market and puts in the base currency at one time; The latter is that the central bank directly sells bonds and withdraws the base currency at one time. Central bank bills are short-term bonds issued by the People's Bank of China. By issuing central bank bills, the central bank can withdraw the base currency and put it back when the central bank bills expire.
According to the needs of currency regulation, in recent years, the People's Bank of China has continuously innovated its open market business tools. 20 13, 1 6, the People' s Bank of China established "Short-term $ TERM Liquidity Operation (SLO)" on the basis of the existing monetary policy operation framework and drawing lessons from international experience. As a necessary supplement to the routine operation in the open market, it can be used as a camera operation in case of temporary fluctuations in liquidity in the banking system. The timely creation of this tool will not only help the central bank to effectively regulate the short-term capital supply in the market, smooth the sharp fluctuation of market capital supply and demand caused by sudden and temporary factors, promote the smooth operation of the financial market, but also help stabilize market expectations and effectively prevent financial risks.