An inclusive money market eco-system is one of the pre-conditions to stable capital markets and real economy development. In the absence thereof, financial intermediaries and financial markets will struggle to perform their core role of converting household savings into loans to SMEs, among others. This is especially the case in emerging markets and developing countries (EMDCs) where the financial sector is bank-centric and bond markets are under-developed.
Ten features combine to make a healthy money market eco-system:
Trading & settlement systems such as DVP system and trading platforms for OTC
Macroeconomic stabilitydriving supply and demand factors
Confidence & capacity of market participants such as banks and institutional investor
Monetary policyon inflation and foreign exchange affecting money market activity
Prudential and market regulationcovering banks, markets and products, and licensing requirements and code of conduct
Institutional capacityof regulators, other government institutions, market infrastructure providers auditors and judicial actors
Financial products that include benchmark rate, yield curves, FX forward and swap, repos, collateral management, etc.
Legal certaintyaddressing enforceability of transaction documentation, closed netting, title transfer, etc
Market liquiditythrough secondary market for government securities and liquid collateral needs
Price discoveryresulting from sufficient liquidity in FX and interest rate markets & transparency through reporting/disclosure/trading systems