International Liquidity Issues

International Liquidity Issues

International Liquidity Issues

International Liquidity Issues

Excerpt

Although the international monetary system underwent major reform during the 1970s, this did not quiet controversy about international monetary problems. Considerable concern has been expressed that deficiencies in the mechanism for the provision and control of international liquidity may have been major causes of worldwide inflation and currency instability, and that our new international monetary system based on more flexible exchange rates does not adequately deal with these problems.

There have always been differences of judgment whether international reserves were growing too rapidly or too slowly and about what forms international reserve holdings should take. Should more reliance be placed on gold, on the dollar, on some combination of major currencies, or on an international paper unit? Such was the focus of the international liquidity controversies of the 1960s. These controversies were quite sufficient to generate a huge literature by professional economists and international monetary experts on international liquidity issues and to stimulate a major series of international political negotiations that culminated in the historic agreements creating a new type of official international money, the special drawing rights (SDRs) administered through the International Monetary Fund.

Far from resolving international liquidity disputes, however, the creation of the SDR was soon followed by a series of international financial developments that have necessitated a complete rethinking of the nature of international liquidity issues and how we should analyze them.

The old sources of controversy have not disappeared, although their exact nature and importance have been substantially modified in many instances, and many new international liquidity questions . . .

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