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Innovation in Public Debt Management to Reduce the Federal Deficit

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  • Jonathan R. Kesselman

Abstract

By implementing new methods of debt management, the government of Canada could significantly reduce its largest outlay, debt service costs. This paper assesses the advantages, operation, and economics of one such innovation--U.S.-dollar denominated treasury bills (USDTBs). Average annual savings from USDTBs could range from $250 million to more than $1 billion, depending upon how they were applied and economic circumstances. Any exchange rate losses would be more than offset by the interest savings. Exchange risks would be justified by the reduced risks associated with the total public deficit--the sum of debt service charges plus the fiscal operating deficit. Reducing debt service costs through USDTBs is shown to be more attractive than most other means of curbing the deficit.

Suggested Citation

  • Jonathan R. Kesselman, 1992. "Innovation in Public Debt Management to Reduce the Federal Deficit," Canadian Public Policy, University of Toronto Press, vol. 18(3), pages 327-352, September.
    • Handle: RePEc:cpp:issued:v:18:y:1992:i:3:p:327-352
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    References listed on IDEAS

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    1. R. F. Lucas & B. Reid, 1991. "The Choice of Efficient Monetary Arrangements in the Post Meech Lake Era," Canadian Public Policy, University of Toronto Press, vol. 17(4), pages 415-433, December.
    2. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
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