I recommended this years ago when Karim first introduced me to his Treasury contacts.
It moved forward and was passed around for discussion, but the dealers quashed it.
An unlimited lending program could replace much of the generic libor swap market.
Wish they would revisit it.
“A backstop lending facility turns this understanding on its head: the Treasury would be issuing securities not because it needs cash, but because market participants need securities.”
They don’t notice a difference between gold standard and “modern money”, actually they draw a parallel:
“… the markets for borrowing and lending Treasury securities in the 21st century are broadly analogous to the 19th century market for borrowing and lending money. Dealers and other market participants today have short-term liabilities denominated in Treasury notes; 19th century banks had deposit liabilities. Additionally, there is limited elasticity in the supply of individual Treasury securities today, just as there was limited elasticity in the supply of base money in the 19th century. A backstop securities lending facility would enhance the elasticity of supply of Treasury securities in the same way that the Federal Reserve Banks enhanced the elasticity of currency a century ago. It would mitigate chronic settlement fails, just as the Federal Reserve System mitigated suspensions of convertibility of bank deposits.”
They don’t discuss interest on reserves (and they should, these being functionally equivalent to Tsy securities).