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Indonesia Has Plans to Expand Its Money Market. Is That a Good Idea?



Money markets could bring great benefits to the country’s economy, alongside an injection of systemic risk.

In December 2020, Bank Indonesia released a Blueprint for Money Market Development 2025. The goal of this document is to set the ground rules for developing a more active money market in Indonesia, part of a larger and longer-term effort to deepen Indonesia’s capital markets. It means you have to continuously roll over short-term debt just to keep your business operating, and if that market should seize it can be disastrous. For whatever reason, as money markets grow they seem to incentivize these kinds of risky funding strategies.
The implosion of these markets was once again staved off only when the U.S. Federal Reserve intervened. But it’s hardly surprising. A market structured around highly liquid assets is, as the name implies, going to be one of the first dominoes to fall during a liquidity crisis.

This article was written by  James Guild

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