History
In 1971, Bruce R. Bent and Henry B. R. Brown established the first money market fund in the U.S. It was named The Reserve Fund and was offered to investors who were interested in preserving their cash and earning a small rate of return. Several more funds were shortly set up and the market grew significantly over the next few years.
Money market funds in the US created a way of getting around Regulation Q, which at the time prohibited demand deposit accounts from paying interest and capped the rate of interest on other types of bank accounts. Thus, money market funds were created as a substitute for bank accounts.
Outside of the U.S., the first money market fund was set up in 1968 and was designed for small investors. The fund was called Conta Garantia and was created by John Oswin Schroy. The fund's investments included low denominations of commercial paper.
In the 1990s, bank interest rates in Japan were near zero for an extended period of time. To search for higher yields from these low rates in bank deposits, investors used money market funds for short-term deposits instead. However, several money market funds fell off short of their stable value in 2001 due to the bankruptcy of Enron, in which several Japanese funds had invested, and investors fled into government-insured bank accounts. Since then the total value of money markets have remained low.
Money market funds in Europe have always had much lower levels of investments capital than in the United States or Japan. Regulations in the EU have always encouraged investors to use banks rather than money market funds for short term deposits.
Read more about this topic: Money Market Fund
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