Co-working in the collateral factory: analyzing the infrastructural entanglements of public debt management, central banking, and primary dealer systems

Scholarship on sovereign debt emphasizes the importance of central banks in backstopping markets, but less attention has been devoted to the interactions of debt management offices with private finance. To fill this gap, this article examines the market-based operations of debt management offices alongside those of central banks. Debt management has played a crucial role in constructing and nurturing liquidity conditions in primary and secondary markets for sovereign debt through the contracting of primary dealers as monetary and fiscal policy partners, the embrace of repo markets, and later, through the creation of special liquidity facilities. Co-working in the collateral factory of the modern financial system creates new forms of entanglements that we term the ‘collateral triangle’, linking together central banking, debt management, and primary dealer operations in a shared convergence on repo finance as integral to public sector governability and private sector business models. Debt management and central banking jointly created and now maintain the infrastructures of this ‘collateral triangle’, not least because the inherent stability risks of repo markets threaten market-based monetary policy and market-based debt management. Routine de-risking by both actors is a core feature of the collateral system.