Currently it is State it is financed by offering an average of 4.4% on BTPs, the 10-year ones that are used to calculate the spread which is currently 1.8% (i.e. in Germany government bonds cost around 1.8% Less).
It could be financed for at least 1% less and maybe cancel the spread if instead of issuing BTPs the Treasury Ministry issued securities without maturity, but to which any expense can be charged, such as a current account. In practice it would be like having a current account, which however pays similar interest to a savings account. Since it is also a current account, it would offer a lower return because it would have the advantage of not having constraints on being able to use the money. And compared to BTPs, they do not have price fluctuations (and the “spread”).
Today there are three solutions for savings (when you don’t want to take risks): the current account, the savings account and government bonds. Checking accounts pay 0.2%, savings accounts and government bonds 4 to 5%. If the State offered a savings account that was also a current account, it could be financed at 3%.
Let’s quickly summarize the advantages of the three existing solutions and why you can create a new one now (thanks to digital payments technology).
Italian government bonds have an average duration or maturity of approximately 7 years. The reason why a seven-year BTP doesn’t pay 3% is that BTPs have price fluctuations, in recent years even by 20 or 25%. If it is true that by holding them until maturity they are repaid at par, issued at 100 and repaid at 100, in the seven or ten years before maturity you can have that your 100 thousand euro package in BTPs could at a certain point be worth 90 thousand or 80 thousand euros. In practice, if you look at it, all the BTPs (with a ten-year maturity for example) issued after around 2015 first increased significantly in price (because the ECB cut rates) and then collapsed in price (because the ECB increased rates).
The advantage of BTPs compared to savings accounts of the banks or the post office (which pay similar coupons) and that you are not bound, if you need money you can sell it or give it as collateral and the next day you receive a liquidity loan. But precisely, if there are large price fluctuations over the years you don’t want to sell them, if you buy them at the “wrong” time, you always wait years until the expiration to get your money back.
When it comes to cost of debt public and “spread” the elephant in the room, as they say, is that alongside the BOTs and BTPs there are almost 2 thousand billion in Italy current accounts which cost only 0.1% or 0.2% to the banks. The advantage of current accounts is that you can always use the money at any time and there are no risks, obviously the nominal value fluctuates as with BTPs. The real value, however, with inflation as in the last two years, can fall.
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The State could offer a solution that combines the advantages of the current account and those of the savings account, i.e a checking account that pays interest or if we want, a savings account, but which has no strings attached. In practice, a current account that pays interest similar to a Bot (which is usually lower than that of BTPs, because the risks of market fluctuations are much lower). The technology of recent years allows it, today you could instantly and without additional costs charge any expense, even a 5 euro pizza, to an account that contains government bonds or a bond fund. Today you could have 60 thousand invested in securities in a Treasury-backed savings account and charge your grocery shopping to that account.
If the Treasury Ministry offered a savings account, which also functioned as a current account, there would be no risk of price fluctuations that there are for BTPs. Compared to the current account you would have an additional return, coupons like a Bot for example. Compared to a savings account, you could use the money if you need it, it is not tied up for two years with penalties if you need it sooner.
There are no technical or legal problems to offer this solution. To be precise, from a legal point of view, you would be offering government bonds without maturity (perpetual), but using a payment technology that allows you to charge any expense by debit or debit card or bank transfer. While for a perpetual title (as there once were) you basically receive interest forever and then your heirs, here instead, thanks to modern digital technologies, you give the possibility to spend or transfer at any time.
Since it would be a more convenient solution than BTPs, current accounts and savings accounts, you would have a good demand for this product. But obviously you can adjust it by offering, if you see that it is successful, a slightly lower return. If you see that offering 3.2% for these current accounts brings in too much money reduce your yield at 3% or 2.7% (like German bonds). If, however, you receive less than what the State wants to obtain, you raise the yield a little.
Savings accounts guaranteed by the Treasury and functioning as current accounts would certainly be an innovation, why not try? What are the risks of this proposal?
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