This study aims to grasp the organization, current state and obstacles of the money market in Korea that plays a central role in the country’s financial industry, and to suggest plans to promote the market in the long run by reviewing its performance and problems.
One of the reasons why Korea’s financial sector does not match up to the country’s progress in its real economic sector is that demand and supply of funds in financial markets are determined less by market prices than by public policies to keep interest rates low. Further growth of Korea’s financial sector and boosting efficiency both in the country’s financial policies and national economy require interest rate liberalization. It is desirable for the liberalization to be implemented step by step, and the money market can be a good starting point.
The money market performs various functions: it adjusts excessive demand or supply of short-term funds, helps connect various financial markets by facilitating flow of funds across them, serves as a primary channel connecting real and financial sector and acts as a venue for open market operations, which is the major tool for monetary policy. The money market is one of the most sensitive markets to changes in demand/supply of funds and overall economic conditions. A desirable order of interest rate liberalization in the money market is as follows; call rate, unsecured notes, treasury bills, notes issued by short-term financial institutions, CDs (short-term securities issued by banks), and finally commercial bills.
For successful rate liberalization, securing stable prices through effective monetary policies is critical. In advanced economies, financial instruments in the money market are treated as equivalents of money with their low risk and high liquidity. Higher stability and credibility of the money market requires a depositor protection system and establishing independent credit rating companies to provide objective indicators by which interest rates can be differentiated according to individual firms’ credit status.
Competition must be introduced into Korea’s financial markets to induce increased efficiency of financing and innovative financial techniques. In order to secure fair competition with banks, however, short-term financial institutions should be allowed to expand their operations as dealers and brokers in the money market, to develop money market funds (MMF) and to set up branch networks.
단기금융시장의 당면과제와 발전방향
서울 : 한국개발연구원
|Series Title; No||연구보고 / 83-08|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|