All money funds also will be given an option to restrict or impose a fee on withdrawals when a fund’s easy-to-sell assets are depleted. This makes explicit that in times of stress it might be impossible to access one’s money. This has prompted assets in prime funds to drop below $1 trillion for the first time this century.

So far, so sensible. But there is a wrinkle. Money funds that buy government paper are exempt from the new rules, on the basis that Treasury bills are always easy to sell and there is no risk of default. The rule makers seem to have forgotten the near default in 2010 and the downgrade of the U.S. debt rating, not to mention the accidental failure to pay some Treasury bills in April 1979 due to paperwork backlogs.

The effect of the exemption is that money has poured in to government funds as investors worry that they might not always be able to access cash in prime corporate funds.

Carmen Reinhart, a finance professor at Harvard University’s John F. Kennedy School of Government, says governments across the developed world are interfering more with private flows of cash as their financing needs soar. Directing money to the state at the same time as the central bank keeps interest rates below inflation to boost growth amounts to a subsidy of the government by savers, a hidden tax.

“The way we have revamped regulation has clearly favored government debt,” she said. “The regulation creates the captive audience, and the monetary easing creates the ‘tax.’ ”

Outside Iceland, Greece and Cyprus, the West remains far less financially repressed than in the 1950s or 1960s, when capital controls meant Britons couldn’t take more than £50 ($66) out of the country, while Americans were still forbidden from investing in gold.

Eoin Treacy's view

Financial repression might not be as restrictive today as it was in the 1960s but there is no denying that it has become a more relevant factor for investors over the last decade. Tinkering with money market funds is a further iteration of government policy to ensure they have a market for the paper they are printing and this is as equally true for both short and long maturity paper. Europe in particular has been proactive in forcing insurance companies and banks into holding long-dated government paper as security against future perils. 


In addition to buying bonds via quantitative easing programs these measures have contributed to the lower borrowing costs governments enjoy as well as the low yields investors receive. UK Gilt and US Treasury yields posted new all-time lows last month and potential for reversions back towards their respective means has improved over the last week. Nevertheless sustained breaks in medium-term progressions of lower rally highs would be required to signal more than temporary supply dominance.