The Birth of a Bill Market

Abstract

In the economic literature concerning the money and capital markets of less developed countries, one half-truth has persisted, namely that LDC governments face a long and difficult task if they attempt to create bill markets. This paper presents a startling bit of counterevidence from Colombian experience, where a functioning government bill market arose almost before the government was aware that is was issuing bills. The implication is clear: it is only difficult to establish bill markets when the effort consists of the attempted creation of an artificial demand for bills at unrealistic interest yields. Finally, it is argued that LDC governments may not have been foolish in so long ignoring the virtues of functioning bill markets.