The Pressure to Create Cash Substitutes

30 Pages Posted: 15 Feb 2019

See all articles by Christoph Becker

Christoph Becker

University of Applied Sciences Darmstadt

Date Written: February 5, 2019


Treasuries are not money-like financial assets, but the market based credit system is the financial infrastructure that uses safe and liquid assets like Treasuries as raw material to produce money-like financial claims, i.e. shadow money. The ratio of Treasuries useable by money dealers, i.e. securities dealers or money market mutual funds, to demand for money-like financial claims by institutional investors is a statistically and economically significant determinant of spreads in both money and bond markets beyond conventional determinants. The ratio measures the pressure on the financial system to provide additional safe collateral to back money-like claims or, if that is not possible, to issue unsecured short-term liabilities. Money demand by institutional investors is an indirect source of demand for safe debt securities as collateral for shadow money, distinct from demand for safe debt securities as long term investments. The empirical findings are useful to assess financial stability.

Keywords: treasury supply, liquidity, financial stability, interest rates, banking

JEL Classification: G12, G2, E4

Suggested Citation

Becker, Christoph, The Pressure to Create Cash Substitutes (February 5, 2019). Available at SSRN: or

Christoph Becker (Contact Author)

University of Applied Sciences Darmstadt ( email )

Schöfferstrasse 3
Darmstadt, 64295

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