Government cash flows have grown substantially in recent decades and advances in technology and financial markets have afforded many cash managers the opportunity to make greater use of different financial instruments to offset these flows. Although the primary goal of cash management is the same in all countries—to ensure governments meet their payment obligations—approaches can differ significantly, and comprehensive information on governments’ cash management practices is limited. This report helps bridge this gap by exploring OECD country practices on cash flow forecasting, liquidity risk management and the use of cash instruments.
Managing Government Cash
A Review of Practices in OECD Countries
Abstract
Executive Summary
The core aim of cash management is consistent across countries — to meet the sovereign's cash requirements and reassure investors that payments will be made — but practices differ significantly.
Countries diverge on the basic definitions such as liquidity, instruments used and complementary objectives which may include maximising investment returns and/or minimising the impact of cash management operations on monetary policy. While some countries have dedicated cash management teams, others integrate cash management within broader debt management offices (DMOs) or the treasury. Forecasting timeframes, precision, and data-gathering methods also differ, as do liquidity strategies, where some rely mostly on cash or liquidity buffers, while others make greater use of instruments like repos or T-bills to fine-tune cash flows. Investment approaches range from holding all liquidity as central bank deposits to investing nearly all liquidity in the market.
There is no single optimal model for cash management. Best practices depend on the local context, including factors such as the agreements with the central bank, market depth, risk appetite, governance and funding environment.
The agreements between the central government and the central bank are an important contextual factor for cash management practices. Where these allow for unlimited access to deposits remunerated at or close to market rates, countries tend to invest all liquidity in this way. Elsewhere, countries must rely more on market-facing tools to get competitive returns on investments of excess liquidity, albeit this is typically done under a strict risk framework.
Other relevant factors include local money market depth, risk appetite and governance structures. Countries with deep money markets have less need to hold excess liquidity, as they can quickly and reliably access funding. Risk appetite influences cash and liquidity buffer policies, with some countries minimising liquidity to save costs and others maintaining higher buffers to absorb fluctuations in cash needs. Governance structures also impact data gathering, decision-making and the use of cash instruments.
Cash management frameworks also evolve in response to changes in market and fiscal conditions, as shown by the COVID-19 pandemic and the subsequent period of monetary tightening. The pandemic highlighted the need for flexibility in cash management to adapt to sudden changes in funding requirements. This heightened uncertainty prompted many countries to overborrow and build larger cash buffers. Government cash deposits in central banks reached nearly USD 3 trillion in G7 countries at the height of the COVID-19 period, up from around USD 1 trillion just a few months prior. Since the end of 2022, that amount has fallen back and stabilised at around USD 1 trillion. Post-pandemic, positive real yields have returned, replacing the near-zero interest rate environment of pre-2022, and altering the cost-benefit assessment for liquidity management.
Cash flow forecasting is the most standardised aspect of cash management, involving regular data collection supplemented by forecasts to serve as inputs for funding and investment decisions.
Countries’ cash flow forecasting practices typically share several common features. For example, most governments produce short, medium and long-term forecasts, with the former guiding daily cash management decisions and the latter informing annual borrowing needs. Similarly, DMOs provide daily financial data to cash management teams, while fiscal information from budget offices, tax authorities and line ministries is updated less frequently, with updates tied to budget cycles or ad hoc events.
However, significant differences exist in execution. Some countries use advanced statistical models or scenario analysis to refine forecasts and address uncertainties, while others rely mainly on historical trends and inputs from other bodies. The frequency and formality of data sharing arrangements also vary, ranging from formalised daily interactions in some countries to informal or irregular exchanges in others. Institutional frameworks for data exchange can be legally mandated or rely on informal agreements, particularly when the Treasury Single Account (TSA) includes entities outside the central government.
Forecasting accuracy and reliability are crucial for liquidity risk management, especially in countries with smaller cash buffers. Larger buffers reduce the need for more frequently updated forecasts, while countries relying more on cash instruments to offset cash flows require more granular forecasts.
The cash buffer or liquidity target is, to some extent, determined by the depth of local money markets, access to short-term foreign markets, volatility in funding needs and uncertainty in forecasts.
Most countries make public their cash balances, though this varies widely in terms of formality and detail. With regard to liquidity policy, some have formal, detailed guidelines covering specific rules, tools and procedures, while others rely on broad principles or delegate liquidity management to the DMO without a formal policy. Importantly, definitions of liquidity vary, with some countries limiting it to the cash balance in the TSA, while others include term deposits, securities and collateral held.
The cash buffer is at the core of most liquidity policies, with differences in its size and usage leading to variations in cash management practices. Most countries define it as the minimum cash balance to be held as central bank deposits, which are based on projected cash needs for the next days or weeks. Some countries use these buffers to mitigate borrowing costs during periods of market stress, while others reserve them only for when risk events materialise. A few countries also have contingency plans like overdraft facilities with the central bank or credit lines with commercial banks.
In terms of the instruments, countries typically use differing combinations of T-bills, repos, commercial papers and loans to fund; and central bank deposits, reverse repos, buybacks and deposits to invest.
Countries employ a range of tools to different degrees to offset cash flows, choosing instruments based on the size and predictability of these flows. In general, T-bills are primarily used to manage large, predictable flows, while other instruments such as repos, commercial papers and loans offer flexibility for smaller or unexpected fluctuations, sometimes even when markets are closed. In times of emergency, or when domestic markets can be unavailable, some countries turn to foreign markets using currency swaps to hedge against currency risks. Others use foreign markets more routinely.
Where countries have limitations on their ability to place deposits with their central bank or where these deposits are remunerated below market rates, they tend to develop sophisticated frameworks for investing surplus cash, which often include specific policies for selecting instruments and dealing with counterparty risk. These policies can involve setting strict collateral requirements, assessing counterparty creditworthiness and capping exposure limits to manage counterparty concentration risks.
