This section therefore restricts the direct financing of government deficits. The South African Reserve Bank is also financially independent from the government because of adequate financial resources and complete control over its own budget. 6.
Closely related is the liquidity channel, which comes into play at the start of the transmission mechanism, influencing short-term interest rates beyond the conditions set by policy rates. Government bonds are often used as collateral for banks’ refinancing operations. In fact, government bonds are the primary collateral used in the secured interbank market.