International Liquidity Reconsidered

Abstract

Problems of International Liquidity – the Current Viewpoint

The chief reasons for the present ventilation of problems of international liquidity supplies are the general worry about the international debt crisis, the uneasiness about the inconstant and unpredictable development of international foreign exchange reserves and their dependence on the strength or weakness of the US dollar, and lastly the negative experience with marked and often erratic exchange rate changes. The liquidity theme is also relevant for the debate on a general reform of the present monetary “system”, which some people call for. Following some definitive remarks on the concept of international liquidity, which must now be understood in a much broader sense than formerly on account of the decisive role of the international credit markets, four sets of problems are dealt with: First, an examination is made of what the formation of a multi-reserve-currency system and the growing possibilities of recourse to the international financial markets have meant for development of international liquidity supplies. In this connection, the great flexibility of liquidity supplies is emphasized. Secondly, an analysis is made of the results of the debate on an „appropriate” supply of international liquidity for the world. It is stressed that the present shortcomings involve not questions of global supplies, but distribution problems. Thirdly, the possibilities of improved control of international liquidity are discussed. Above all, light is thrown on the necessity and also the problems of control of the Euromarkets; the surveillance function of the IMF is underlined. Lastly, the liquidity problems of the gravely indebted developing countries and possible remedies are dealt with. The only sensible solution is considered to be keeping to the adopted course of adjustment and bridging, conditional liquidity assistance with the object of restoring the creditworthiness of such countries on the markets. To avoid renewed strains on liquidity, the investment and external financing of the developing countries must be geared more closely in future to the provision of long-term capital