The Bank of Japan announced Wednesday that it will accept U.S. government securities as collateral from banks so it can ensure ample funds are in circulation at the end of the year and avoid cash shortages resulting from Year 2000 computer problems.
The central bank’s policy-setting board decided in its previous meeting Oct. 13 to ensure there are ample funds available by yearend.
At the end of this year and in the first few months of next year, the demand for cash is expected to rise as many individuals and corporations probably intend to keep cash at hand in case banks experience Y2K-related problems.
Wednesday’s decision will counteract any such problem by allowing financial institutions to borrow money from the central bank by submitting U.S. treasury bills, notes and bonds as collateral, the bank said.
The measure is good only from Dec. 1 through Jan. 31.
The interest rate for Y2K-related loans will be 0.5 percent — the current official discount rate.
Japan’s major financial institutions currently hold about 3 trillion yen worth of U.S. government securities, bank officials said.
The BOJ also said it will start outright purchases of government bonds in mid- or late November. The introduction of this new monetary policy was decided in the Oct. 13 meeting and is part of the measures to pump more liquidity into the market and assist the bank’s ultra-easy monetary policy.
Also on Tuesday, the bank’s policy-setting board, headed by Gov. Masaru Hayami, decided by a majority vote to keep its current policy of steering the uncollateralized overnight call money rate — a key short-term interest rate — close to zero.
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