The instability of money market mutual funds is a subject of active debate. In the latest issue of Economic Quarterly, Richmond Fed economist Huberto M. Ennis explores a new regulatory framework that is likely to be implemented soon in the United States. The design of such a framework should depend on an assessment of which is the main economic function fulfilled by these funds. If money funds are providing maturity transformation, then redemption values that permanently reflect the market value of assets may be hard to compute and may undermine the purpose of the funds. If funds are mainly investment managers, then market-based redemption values can be appropriate and increase the stability of the funds.
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Also in the Fourth Quarter 2012 issue:
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