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What Is a Cash Management Bill?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 05 September 2016
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A Cash Management Bill (CMB) is a short-term security issued by the government to compensate for a cash shortage. Such bills offer high flexibility to officials working on monetary policy and management of the money supply. Investors can use them as fast investments, although because the lowest possible denomination is usually high, institutional investors are the primary participants in sales of such securities. Information on recent and upcoming sales may be available directly from government representatives as well as a website.

The Treasury is responsible for generating government debt, including bonds and other investment instruments. Investors purchase government debt because it is very low risk, as there’s a limited chance of default. In exchange for the loan of their funds, the Treasury pays interest on the debt and repays the principal when it matures. Some debts mature quickly, while others mature over months or years; the cash management bill has a very short maturation period.

These short-term securities make up for problems with cash flow over the course of days, rather than weeks, months, or years. They may mature in as little as ten days, and do not last more than two months. Interest rates can be high, but because the period of the loan is so short, investors do not stand to earn a substantial amount on a cash management bill. Minimum denominations may start at high numbers, like $1 Million US Dollars (USD), to sell bills quickly to institutional investors.

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A cash management bill can be issued very quickly, allowing a Treasury to adapt to changing economic conditions rapidly. It can adjust the releases of other securities, if necessary, to balance out the CMB offering. Treasury officials balance the immediate need for cash to cover operating expenses and other needs with the desire to avoid getting too deep in debt. They also don’t want to alarm investors and members of the public with activities like large public borrowing, which might undermine confidence in the government’s stability.

Individual investors with an interest in government securities usually do not have enough money to buy a cash management bill. They can choose from an array of other security products, or might consider a short-term investment pool. Such pools use capital from a large group of investors to buy securities in bulk, and are specifically geared at high returns in a short period of time. If appropriate, the mixture of investments can include cash management bills.

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