Diversification of money market instruments; from accounts to money market funds
News_Code: 354989 1/2/2021 11:50:13 AM
Diversification of money market instruments; from accounts to money market funds
Policy report on "diversification of money market instruments; from accounts to money market funds" were compiled by the Monetary and Banking Research Institute.

According to the Monetary and Banking Research Institute's public relations, in the summary and policy recommendations of this report, it is stated: Managing monetary policy based on interest rates to achieve macro goals requires a dynamic and deep money market. One of the strategies in this regard is the diversification of money market instruments. Therefore, in this report, an attempt was made to discuss the function of money market mutual funds and money market deposit accounts briefly and present its implications for monetary policy progress in the Iranian economy.

The results show that in full compliance with the rules and regulations of the Monetary and Credit Council regarding interest rates on deposits, in the sense that in practice there should be a significant difference between interest rates on deposits at different maturities and early withdrawals requires payment of fines and reduction of effective interest rates, having a money market deposit account can be a bit of an incentive for depositors to have interest rates close to the money market while having flexibility in withdrawing funds and conducting transactions. In such a structure, it is proposed to develop a money market account framework in order to reduce the fluidity and increase the durability of short-term funds of the banking network.

In addition to money market deposits, money market funds are another strategy that, while extracting rates of return from the money market and signaling to the monetary policymaker to guide the interest rate corridor, will play an effective role in attracting stray liquidity and short-term resources. In this regard, it is suggested that monetary policymakers provide the basis for establishing these funds by banks and credit institutions by designing rules and supervisory mechanisms. Of course, to diversify the instruments that can be invested in these funds, in addition to participation bonds and treasury bills, other common instruments such as certificates of deposit, bank acceptances, and commercial papers will gradually become operational as tradable instruments in the capital market. This proposed framework and mechanism will require banks to use funds from money market accounts and money market funds to purchase public sector participation bonds and debt securities, which also play an important role in underwriting bonds and financing the government's budget deficit.