Government securities: types and functions

Classifications of securities, as well as just securities, there are a great many. Let us consider in more detail the classification of securities by forms of ownership. According to it, there are state and non-government securities. Non-governmental financial investments are investments in securities issued by joint-stock companies and commercial banks (shares, certificates). State securities are securities issued by the state, state institutions, local authorities (bonds, treasury obligations).

All government securities, in essence, are debt securities. Nevertheless, each security issued by the state has its name, for example, domestic currency loan bonds, etc. Among other securities, government securities characterize a high level of reliability, minimized risk of loss of equity and earnings on fixed capital, very favorable taxation (or even absence thereof).

The state can fill the budget deficit at the expense of the Central Bank, from the issue of money and by issuing securities. If the state resorts to the help of the Central Bank, the ability to regulate the loan market is reduced. The issue of money introduces payment means that do not have real assets, which subsequently leads to inflation and disruptions in the country's monetary circulation. The issue of government securities is the most cost-effective way to finance the budget.

State securities can also be used to finance public debt, and this is much more preferable than raising funds through bank loans. Debt obligations of the state are much more liquid, and for investors it is much easier to sell them on the secondary market.

Sometimes government securities provide commercial banks with liquid assets. To this end, banks invest funds (most often from the reserve fund) in a part of government-issued securities. State securities are also issued to finance programs that are implemented by local authorities. The state can give guarantees on the debt obligations of organizations that, in the opinion of the state, deserve its support.

The issue of government securities may also be caused by the need to repay loans previously issued by the government. Sometimes, the state has short gaps between income and expenditure due to inconsistency in the time of receipt of payments to the budget and uniform budget expenditures. Then the government again resorts to the issuance of government debt.

Some types of securities are designed to smooth the unevenness of tax revenues. Owners of such securities can return them to the government back after a while or pay taxes to them.

State securities of the Russian Federation reflect the specifics of our country, the features of taxation, and at the same time, are based on common bases for the existence and functioning of the securities market for different countries. In the Russian Federation, the types of government securities are determined by the Bank of Russia and the Ministry of Finance of Russia. The most common ones are: state short-term zero-coupon bonds (GKO), bonds of the domestic state currency loan - issued since 1993, federal loan bonds with fixed coupon income, bonds of the state savings loan issued since 1995, bonds of the Bank of Russia (OBR) E.