U.S. Markets open in 7 hrs 10 mins

U.S. Treasury scraps plans to pay down debt, wants cash

(Adds background on debt ceiling)

By Jason Lange

WASHINGTON, May 4 (Reuters) - The U.S. Treasury scrapped plans to pay down debt between April and June because it now considers it prudent for the government to hold a bigger cash buffer, an official at the department said on Monday.

The official, who spoke to journalists in a briefing but was not authorized to be identified, said the policy decision followed the advice of an advisory committee that recommended keeping more cash on hand to weather unforeseen disruptions.

The Obama administration has been studying holding a higher cash buffer for at least a year. Holding more cash on hand at the end of every day would help protect the government's income stream. Treasury revenues could also be hit by natural disasters or other major events that might disrupt the economy.

If the Treasury ever ran out of borrowing authority, it would rely on its cash on hand to pay bills until politicians raised the borrowing limit.

Congressional analysts estimate that Washington must raise the debt ceiling by October or November.

A bigger cash cushion would neither buy the Treasury more time before it missed payments nor would it change the amount of money ultimately borrowed. Rather, a bigger buffer would mean exhausting the Treasury's borrowing authority sooner, while leaving more cash on hand to pay bills. Ultimately, the money would run out the same day it would with a smaller cash balance.

The Treasury said in a statement it expects to borrow $59 billion in net marketable securities during the April-June period. Previously, the administration had said it would pay down $7 billion in debt.

"The increase in borrowing relates primarily to the increase in the end-of-quarter cash balance assumption," the department said.

The change in cash balance policy will leave $260 billion in government coffers at the end of June. Previously, the Treasury forecast it would end the period with $150 billion in cash. The federal government plans to borrow $66 billion in the July-September period.

(Reporting by Jason Lange; Editing by Andrea Ricci, Bernard Orr, Grant McCool and Andre Grenon)