Chapter

Annex II. Stylized Facts: Money and Secondary Government Securities Markets

Author(s):
International Monetary Fund
Published Date:
December 2008
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This annex summarizes stylized facts on money and secondary government securities markets in smaller economies. Data on money markets are especially limited, although there is cross-country data on foreign trading of government securities. IMF (2005a) and Árvai and Heenan (2008) report country case studies for these markets.

Money Markets

The available information suggests that smaller economies offer a narrower range of money market products and have a smaller turnover. Money markets are for uncollateralized domestic currency, cash, or derivatives and are usually dominatedby banks. The available figures also suggest that turnover in smaller economies is but a fraction of that in other countries (Table A2.1). Further, overnight interbank cash transactions tend to be the main product in smaller economies, although some countries have longer maturities and repos, whereas others have trading derivatives (IMF, 2005a; and Lukonga, 2006). In contrast, advanced and larger emerging market countries usually have not only these products but also a variety of derivatives.

Table A2.1.Selected Countries: Interbank Money Market Annual Turnover(In percent of GDP)
Advanced countries
United Kingdom (2001)251
Switzerland (2005)1176
Emerging market countries
South Africa (2004)207
Smaller economies
Cameroon0.4
Central African Republic0.0
Chad0.0
Congo, Republic of0.3
Equatorial Guinea2.4
Fiji13
Gabon0.1
Ghana53
Guyana (2006)25
Kenya63
Malawi42
Mauritius36
Nigeria12
Tanzania48
Uganda2
West African Economic and Monetary Union (2002)6
Sources: Central bank websites; Lukonga (2006); and case studies.

Money market funds.

Sources: Central bank websites; Lukonga (2006); and case studies.

Money market funds.

Secondary Government Securities Markets

The number and turnover of smaller economy secondary government securities markets is growing, but lags far behind those of emerging market countries. Secondary government securities markets are relatively small and illiquid in smaller economies compared to those in emerging market countries. The Debt Trading Volume Survey of the Trade Association for the Emerging Markets (EMTA) appears to be the only cross-country data source for secondary trading in government securities.55 These data, which are from a survey of major international broker-dealers, banks, and investors, will in most cases underestimate total market volume because they exclude the transactions of local banks and other entities. However, they capture the relative size of markets across countries and over time.

The following patterns emerge from the data:

  • The number of countries with trading captured in the EMTA survey has trended slowly upward to 25 percent of all smaller economies in 2005 (Table A2.2).

  • The volume of trading varies quite widely across countries (Figure A2.1).

  • The total amount of trading in U.S. dollars in smaller economy countries nearly quadrupled from 2000 to 2005.

  • However, the amount of secondary market trading in relation to GDP looks lower than that needed to have an important economic impact.

  • The amount traded in smaller economies is dwarfed by the amount traded in emerging market countries by a factor of 200.

  • Further, emerging market country trading in terms of percentage of GDP is larger by a factor of 10 in comparison with smaller economies, indicating a larger economic impact in the emerging market countries.

  • Finally, the turnover-to-GDP gap between the smaller economies and the emerging market countries widened between the year 2000 and the year 2005 (Figure A2.2).

Table A2.2.Government Securities Secondary Market Trading by Foreign Banks, 2001–05
200020012002200320042005
Smaller economies
Countries with trading211920212027
Total in millions of U.S. dollars2,9662,6241,4155,86812,08211,242
Total trading to GDP
Median0.10.10.10.20.30.4
Average0.90.70.41.32.52.5
Bolivia0.00.50.40.40.50.2
Bulgaria0.90.20.11.81.50.0
Cameroon0.00.00.10.00.00.1
Costa Rica4.76.12.41.00.20.4
Côte d’Ivoire1.20.00.30.00.00.5
Croatia0.20.30.10.90.00.4
Dominican Republic0.10.20.23.625.23.5
Ecuador1.50.00.30.84.82.4
El Salvador3.90.80.20.41.812.5
Gabon0.00.00.00.00.00.1
Gambia, The0.00.00.00.00.011.5
Guatemala0.40.10.10.00.30.1
Honduras0.00.00.00.00.01.7
Jamaica6.43.54.84.46.56.3
Jordan0.00.00.00.00.00.0
Kenya0.10.00.00.10.00.3
Latvia0.12.90.10.20.00.2
Lebanon0.20.10.112.46.216.2
Lithuania0.00.10.00.00.00.0
Mauritius0.00.00.60.22.01.0
Nicaragua2.50.40.42.73.10.0
Panama0.50.20.20.14.91.3
Serbia0.00.00.00.71.80.3
Sri Lanka0.00.00.00.00.10.1
Trinidad and Tobago0.00.91.11.01.03.7
Tunisia0.00.20.00.00.31.3
Uruguay1.43.20.87.711.25.3
Zambia1.10.00.00.00.03.6
Zimbabwe1.10.20.20.00.00.0
Emerging market countries
Countries with trading282730303031
Total in millions of U.S. dollars846,7641,326,8191,128,9181,537,4521,844,0522,251,231
Ratio to smaller economy total0.350.200.130.380.660.50
Total trading to GDP
Median2.72.53.12.83.03.2
Average9.114.313.414.715.519.1
Source: Trade Association for the Emerging Markets (EMTA).
Source: Trade Association for the Emerging Markets (EMTA).

Figure A2.1.Market Turnover of Government Securities by Foreign Institutions

Source: Trade Association for the Emerging Markets (EMTA).

Figure A2.2.Market Turnover of Government Securities, Emerging Market Countries and Smaller Economies

Source: Trade Association for the Emerging Markets (EMTA).

Country sources suggest that the share of trading is low relative to the outstanding stock (Árvai and Heenan, 2008; IMF, 2007c). The low turnover-to-stock ratio in smaller economies reflects the buy-and-hold strategy of institutions owing to excess liquidity and a lack of alternative investments.

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