Treasury's role in promoting efficient cash management : evidence from South Africa

Bibliography: pages 74-77.This study examines the efficiency of cash management by the South African Treasury. Given the multitude of instruments used in cash management it is impossible to concentrate on all of them. This study, therefore, focuses on the cash balance and marketable securities as objects of analysis. This necessitates a thorough consideration of the operations and efficiency of the Treasury bill market. The study makes two major contributions. Firstly, it is shown that there exists a saddle point in the interactions between the Treasury and bidders in the auctions. This is Nash equilibrium, in which no party to the game has an incentive to change the strategy unilaterally, except at a loss. This is thus a Pareto efficient outcome, with both the Treasury and bidders' positions improved. It is, therefore, argued that there is scope for improving cash management and lowering costs of borrowing. It is noted, however, that there are significant improvements made in the management of the cash balance. Secondly, this paper argues against the view widely held by auction theorists that uniform-price auctions are more susceptible to manipulation and, as such, are revenue-inferior to discriminatory auctions. It demonstrates that uniform-price and discriminatory auctions are equally susceptible to manipulation and should that happen, uniform-price auctions are still revenue-superior. This result is the converse of what is generally believed and is compatible with the view held by Friedman (1960, 1991). It is also compatible with empirical evidence that has long been viewed as a puzzle. The study, however, concludes that the view held by Friedman is right, but for the wrong reasons