The money markets of other countries

Well-developed money markets exist in only a few high-income countries. In other countries money markets are narrow, poorly integrated, and in many cases virtually nonexistent. Despite the many differences among countries, one can say in general that the degree of development of a country’s financial system, including its money markets, is directly related to the level of its economy. Most very-low-income countries have limited financial systems in which money markets play no role. In many former colonies, notably in Africa, expatriate commercial banks had substituted for a local money market; the banks met fluctuations in loan demand by changing their balances at head offices in London or elsewhere. More recently, government policies have encouraged these banks to develop domestic channels for temporary surpluses and deficits. Persistent inflation has been another factor inhibiting the growth of money markets in developing countries, notably in Latin America.

Most developing countries, except those having socialist systems, have the encouragement of money markets as a policy objective, if only to provide outlets for short-term government securities. At the same time many of these governments pursue low-interest-rate policies in order to reduce the cost of government debt and to encourage investment. Such policies discourage saving and make money market instruments unattractive. Nevertheless, a demand for short-term funds and a supply of them exist in all market-oriented economies. In many developing countries these pressures have led to “unorganized money markets,” which are often highly developed in urban areas. Such markets are unorganized because they are outside “normal” financial institutions; they manage to escape government controls over interest rates; but at the same time they do not function very effectively because interest rates are high and contacts between localities and among borrowers and lenders are limited. In all developing countries traditional forms of moneylending continue, particularly for agriculture and small enterprise.

Glenn G. Munn, F.L. Garcia, and Charles J. Woelfel, Encyclopedia of Banking and Finance, 9th ed., rev. and expanded (also published as The St. James Encyclopedia of Banking & Finance, 1991), provides comprehensive definitions, many with bibliographies. Edward I. Altman and Mary Jane McKinney (eds.), Handbook of Financial Markets and Institutions, 6th ed. (1987), is a thorough compilation. Detailed information on a variety of markets is provided in Francis A. Lees and Maximo Eng, International Financial Markets: Development of the Present System and Future Prospects (1975), a descriptive treatment; Charles R. Geisst, A Guide to the Financial Markets, 2nd ed. (1989), for the general reader; Frank J. Fabozzi and Frank G. Zarb, Handbook of Financial Markets: Securities, Options, and Futures, 2nd ed. (1986); and Perry J. Kaufman, Handbook of Futures Markets: Commodity, Financial, Stock Index, and Options (1984), including the history, regulation, and mechanics of futures trading. Further discussion of financial futures is found in Mark J. Powers and Mark G. Castelino, Inside the Financial Futures Markets, 3rd ed. (1991), an explanation of the exchanges and their functions; and Nancy H. Rothstein and James M. Little (eds.), The Handbook of Financial Futures: A Guide for Investors and Professional Financial Managers (1984), a discussion of the market’s development, organization, and regulation.

The development and operation of the international capital market is addressed by M.S. Mendelsohn, Money on the Move: The Modern International Capital Market (1980). Reference works include Marcia Stigum, The Money Market, 3rd ed. (1990), comprehensive and readable; and Gunter Dufey and Ian H. Giddy, The International Money Market (1978). Timothy Q. Cook and Timothy D. Rowe (eds.), Instruments of the Money Market, 6th ed. (1986), explains such key instruments as Eurodollars, treasury securities, and federal funds. David M. Darst, The Handbook of the Bond and Money Markets (1981), is a practical guide. Money markets in countries in Asia and the Pacific are studied by Aron Viner, Inside Japanese Financial Markets (1988); Yoshio Suzuki, Money and Banking in Contemporary Japan, trans. from the Japanese (1980), analyzing Japan’s participation in international capital markets; The Japanese Financial System (1978), published by the Bank of Japan, a brief description of financial institutions, financial markets, and characteristics of the financial structure; and Michael T. Skully (ed.), Financial Institutions and Markets in the Far East (1982), Financial Institutions and Markets in Southeast Asia (1984), Financial Institutions and Markets in the Southwest Pacific (1985), and Financial Institutions and Markets in the South Pacific (1987).