International liquidity: Difference between revisions
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'''International Liquidity''' is associated with international payments. These payments result from the international trade in goods and services, as well as from the flow of capital between one country and another.International liquidity refers to the accepted rules official measures regulating the imbalance in international payments<ref>International liquidity cycles to developing countries in the financial [[globalization]] era 2008</ref>. Another variant of international liquidity aggregates either wide measures of the money supply or credit. If the [[interest]] rates are low and lenders ris appetite has been increased, the loan may seems easy to get, so liquidity is sometimes used as a synonym for loan<ref>Loose use of liquidity just confuses the issue 2007</ref>. | |||
'''International Liquidity''' is associated with international payments. These payments result from the international trade in goods and services, as well as from the flow of capital between one country and another.International liquidity refers to the accepted rules official measures regulating the imbalance in international payments<ref>International liquidity cycles to developing countries in the financial [[globalization]] era 2008</ref>. Another variant of international liquidity aggregates either wide measures of the money supply or credit. If the interest rates are low and lenders ris appetite has been increased, the loan may seems easy to get, so liquidity is sometimes used as a synonym for loan<ref>Loose use of liquidity just confuses the issue 2007</ref>. | |||
'''Governments and central banks''', such as commercial banks and non-financial corporations, wanted more ''"liquidity assurance"'' - that is to say they would have adequate international liquidity to protect themself against the financial crisis<ref>International Liquidity [[management]] since the financial crisis 2013</ref>. | '''Governments and central banks''', such as commercial banks and non-financial corporations, wanted more ''"liquidity assurance"'' - that is to say they would have adequate international liquidity to protect themself against the financial crisis<ref>International Liquidity [[management]] since the financial crisis 2013</ref>. | ||
== International liquidity assurence == | ==International liquidity assurence== | ||
Satisfactory techniques to ensure international liquidity assurance should meet the following criteria<ref>International [[Liquidity management]] since the financial crisis 2013</ref>: | Satisfactory techniques to ensure international liquidity assurance should meet the following criteria<ref>International [[Liquidity management]] since the financial crisis 2013</ref>: | ||
* They should provide reasonable assurance on the fulfillment of their international liquidity [[needs]] in those countries that [[need]] it | * They should provide reasonable assurance on the fulfillment of their international liquidity [[needs]] in those countries that [[need]] it | ||
| Line 25: | Line 9: | ||
* They must avoid unreasonable load for liquidity providers | * They must avoid unreasonable load for liquidity providers | ||
== The diverse sense of International liquidity == | ==The diverse sense of International liquidity== | ||
In the national economic context, liquidity has many meanings<ref>Perspectives: International Liquidity 2007</ref>: | In the national economic context, liquidity has many meanings<ref>Perspectives: International Liquidity 2007</ref>: | ||
* [[Market]] liquidity: the ease with which you can sell an asset, in particular, whether it can be done | * [[Market]] liquidity: the ease with which you can sell an asset, in particular, whether it can be done in a large volume without lowering the [[price]]. | ||
* Institutional liquidity: the institution is liquid if its balance sheet has a high share of assets whose value can be quickly realized to pay off debts. | * Institutional liquidity: the institution is liquid if its balance sheet has a high share of assets whose value can be quickly realized to pay off debts. | ||
* Cash liquidity: originally liquidity defined as base [[money]] - construction block and the loan multiplier policiy instrument. Used as a general reflection of the policy and monetary position. Including loose meaning. it could be a price, interest rate of [[quality]], one of monetary aggregates or credit. | * Cash liquidity: originally liquidity defined as base [[money]] - construction block and the loan multiplier policiy instrument. Used as a general reflection of the policy and monetary position. Including loose meaning. it could be a price, interest rate of [[quality]], one of [[monetary aggregates]] or credit. | ||
== Two areas of International liquidity == | ==Two areas of International liquidity== | ||
In richer countries, immersion in global capital markets has created international liquidity is in two main areas of vulnerability<ref>International Liquidity: THe Fiscal Dimension 2011</ref>: | In richer countries, immersion in global capital markets has created international liquidity is in two main areas of vulnerability<ref>International Liquidity: THe Fiscal Dimension 2011</ref>: | ||
* the assistance of financial institutions | * the assistance of financial institutions | ||
* the funding of supreme debt | * the funding of supreme debt | ||
Both are closely related as support for private financial [[system]] can increase public debt, while fiscal strained the government may have difficulty in credibly guaranteeing financial stability. | Both are closely related as support for private financial [[system]] can increase public debt, while fiscal strained the [[government]] may have difficulty in credibly guaranteeing financial stability. | ||
==Examples of International liquidity== | |||
# ''' Foreign Exchange Reserve''': The [[foreign exchange reserve]] is a country’s stockpile of foreign currency. It is used to ensure that the country can pay for its imports and meet its international obligations. A country’s foreign exchange reserve can be built up by earning foreign currencies through exports, and by receiving foreign [[investments]]. | |||
# ''' International Loans''': International loans are financial agreements between two countries or international organizations, in which one party provides money to the other. These loans may be used to finance large-scale projects or to help a country manage its balance of payments. | |||
# ''' International Trade''': International trade involves the exchange of goods and services between two countries. It helps to provide each country with the resources it needs to produce goods and services, and to promote economic growth. | |||
# ''' Currency Swaps''': Currency swaps are agreements between two parties to exchange one currency for another, at a specific exchange rate. These swaps are often used to help countries manage their balance of payments. | |||
==Advantages of International liquidity== | |||
International liquidity is an important factor in promoting [[economic stability]] and the overall health of the global economy. The advantages of international liquidity include: | |||
* Increased [[efficiency]] in international payments and transactions, as international liquidity makes it easier for countries to exchange currencies and trade goods and services. | |||
* Increased access to capital, as international liquidity makes it easier for countries to borrow and lend money. | |||
* Enhanced stability in the international financial system, as international liquidity helps to reduce the [[risk]] of currency fluctuations, sudden capital outflows and financial crises. | |||
* Improved international [[investment]] opportunities, as international liquidity makes it easier for investors to diversify their portfolios and access global markets. | |||
* Increased ability for countries to access the global economy, as international liquidity helps facilitate trade and investment opportunities. | |||
* Improved global economic development, as international liquidity enables more countries to take advantage of the benefits of globalization. | |||
==Limitations of International liquidity== | |||
* International liquidity can be limited by the exchange rate of one currency to another. Exchange rate fluctuations can have a major impact on the amount of liquidity in global markets. | |||
* International liquidity can also be affected by the balance of payments between countries. If a country has a deficit in its balance of payments, it may need to borrow from other countries in order to stabilize its current account. This can limit the amount of liquidity available in the market. | |||
* Political instability in a country can also have a major impact on its liquidity. If a country is facing political turmoil, investors may be less likely to invest in that country, reducing the amount of liquidity available. | |||
* The amount of liquidity available in a country can also be affected by [[economic factors]]. For example, if a country has high levels of [[inflation]], investors may be less likely to invest in that country, reducing the amount of liquidity available. | |||
* Another limitation of international liquidity is the availability of funds. If a country has limited access to capital, it may be difficult for it to raise the necessary funds to finance its activities, reducing the amount of liquidity available. | |||
==Other approaches related to International liquidity== | |||
* '''Introduction''': International liquidity is an important factor in the global economy and involves a variety of approaches and measures. | |||
* '''Balance of Payments''': Balance of payments is an important measure of international liquidity. It is a record of all transactions between one country and its trading partners, which is maintained to ensure a country's ability to meet its financial obligations. | |||
* '''Exchange Rate Adjustments''': Exchange rates are key to international liquidity. Exchange rate adjustments can be used to encourage or discourage international trade and investment. | |||
* '''Foreign Exchange Reserves''': [[Foreign exchange reserves]] are a key tool for managing international liquidity. They are held in reserve to maintain a country's exchange rate and to provide a source of foreign currency for use in international transactions. | |||
* '''Credit and Debit''': Credit and debit transactions can play an important role in international liquidity. By providing a source of liquidity, these transactions can help to reduce the risk of financial instability. | |||
* '''Capital Market Instruments''': Capital market instruments, such as [[bonds]] and stocks, can be used to provide a source of international liquidity. These instruments can be used to finance long-term investments, as well as to provide short-term [[financing]] for international transactions. | |||
Summary: International liquidity is an important factor in the global economy, and involves a variety of approaches and measures. These include balance of payments, exchange rate adjustments, foreign exchange reserves, credit and debit transactions, and capital market instruments. These measures all play a role in ensuring that a country's financial system remains stable and that international trade and investment can continue to flow freely. | |||
==Footnotes== | ==Footnotes== | ||
<references /> | <references /> | ||
== References == | {{infobox5|list1={{i5link|a=[[Money emission]]}} — {{i5link|a=[[Net Borrower]]}} — {{i5link|a=[[Capital flow]]}} — {{i5link|a=[[Sovereign guarantee]]}} — {{i5link|a=[[Deposit rate]]}} — {{i5link|a=[[Price stability]]}} — {{i5link|a=[[Currency Convertibility]]}} — {{i5link|a=[[Creation of money]]}} — {{i5link|a=[[European monetary system]]}} }} | ||
==References== | |||
* Biancareli A. M. (2008), [http://www3.eco.unicamp.br/cecon/images/arquivos/publicacoes/publicacoes_20_2057235698.pdf ''International liquidity cycles to developing countries in the financial globalization era''], State University of Campinas, Brasil | * Biancareli A. M. (2008), [http://www3.eco.unicamp.br/cecon/images/arquivos/publicacoes/publicacoes_20_2057235698.pdf ''International liquidity cycles to developing countries in the financial globalization era''], State University of Campinas, Brasil | ||
* Grenville S. (2007), [https://www.files.ethz.ch/isn/87108/2007-03-14.pdf ''Perspectives: International Liquidity''], Lowy Institute for international policy, Sydney, Australia | * Grenville S. (2007), [https://www.files.ethz.ch/isn/87108/2007-03-14.pdf ''Perspectives: International Liquidity''], Lowy Institute for international policy, Sydney, Australia | ||
Latest revision as of 23:13, 17 November 2023
International Liquidity is associated with international payments. These payments result from the international trade in goods and services, as well as from the flow of capital between one country and another.International liquidity refers to the accepted rules official measures regulating the imbalance in international payments[1]. Another variant of international liquidity aggregates either wide measures of the money supply or credit. If the interest rates are low and lenders ris appetite has been increased, the loan may seems easy to get, so liquidity is sometimes used as a synonym for loan[2].
Governments and central banks, such as commercial banks and non-financial corporations, wanted more "liquidity assurance" - that is to say they would have adequate international liquidity to protect themself against the financial crisis[3].
International liquidity assurence
Satisfactory techniques to ensure international liquidity assurance should meet the following criteria[4]:
- They should provide reasonable assurance on the fulfillment of their international liquidity needs in those countries that need it
- They should shun overmuch moral hazard, in particular miss giving countries basic imbalance to the means to delay the necessary adjustment
- They must avoid unreasonable load for liquidity providers
The diverse sense of International liquidity
In the national economic context, liquidity has many meanings[5]:
- Market liquidity: the ease with which you can sell an asset, in particular, whether it can be done in a large volume without lowering the price.
- Institutional liquidity: the institution is liquid if its balance sheet has a high share of assets whose value can be quickly realized to pay off debts.
- Cash liquidity: originally liquidity defined as base money - construction block and the loan multiplier policiy instrument. Used as a general reflection of the policy and monetary position. Including loose meaning. it could be a price, interest rate of quality, one of monetary aggregates or credit.
Two areas of International liquidity
In richer countries, immersion in global capital markets has created international liquidity is in two main areas of vulnerability[6]:
- the assistance of financial institutions
- the funding of supreme debt
Both are closely related as support for private financial system can increase public debt, while fiscal strained the government may have difficulty in credibly guaranteeing financial stability.
Examples of International liquidity
- Foreign Exchange Reserve: The foreign exchange reserve is a country’s stockpile of foreign currency. It is used to ensure that the country can pay for its imports and meet its international obligations. A country’s foreign exchange reserve can be built up by earning foreign currencies through exports, and by receiving foreign investments.
- International Loans: International loans are financial agreements between two countries or international organizations, in which one party provides money to the other. These loans may be used to finance large-scale projects or to help a country manage its balance of payments.
- International Trade: International trade involves the exchange of goods and services between two countries. It helps to provide each country with the resources it needs to produce goods and services, and to promote economic growth.
- Currency Swaps: Currency swaps are agreements between two parties to exchange one currency for another, at a specific exchange rate. These swaps are often used to help countries manage their balance of payments.
Advantages of International liquidity
International liquidity is an important factor in promoting economic stability and the overall health of the global economy. The advantages of international liquidity include:
- Increased efficiency in international payments and transactions, as international liquidity makes it easier for countries to exchange currencies and trade goods and services.
- Increased access to capital, as international liquidity makes it easier for countries to borrow and lend money.
- Enhanced stability in the international financial system, as international liquidity helps to reduce the risk of currency fluctuations, sudden capital outflows and financial crises.
- Improved international investment opportunities, as international liquidity makes it easier for investors to diversify their portfolios and access global markets.
- Increased ability for countries to access the global economy, as international liquidity helps facilitate trade and investment opportunities.
- Improved global economic development, as international liquidity enables more countries to take advantage of the benefits of globalization.
Limitations of International liquidity
- International liquidity can be limited by the exchange rate of one currency to another. Exchange rate fluctuations can have a major impact on the amount of liquidity in global markets.
- International liquidity can also be affected by the balance of payments between countries. If a country has a deficit in its balance of payments, it may need to borrow from other countries in order to stabilize its current account. This can limit the amount of liquidity available in the market.
- Political instability in a country can also have a major impact on its liquidity. If a country is facing political turmoil, investors may be less likely to invest in that country, reducing the amount of liquidity available.
- The amount of liquidity available in a country can also be affected by economic factors. For example, if a country has high levels of inflation, investors may be less likely to invest in that country, reducing the amount of liquidity available.
- Another limitation of international liquidity is the availability of funds. If a country has limited access to capital, it may be difficult for it to raise the necessary funds to finance its activities, reducing the amount of liquidity available.
- Introduction: International liquidity is an important factor in the global economy and involves a variety of approaches and measures.
- Balance of Payments: Balance of payments is an important measure of international liquidity. It is a record of all transactions between one country and its trading partners, which is maintained to ensure a country's ability to meet its financial obligations.
- Exchange Rate Adjustments: Exchange rates are key to international liquidity. Exchange rate adjustments can be used to encourage or discourage international trade and investment.
- Foreign Exchange Reserves: Foreign exchange reserves are a key tool for managing international liquidity. They are held in reserve to maintain a country's exchange rate and to provide a source of foreign currency for use in international transactions.
- Credit and Debit: Credit and debit transactions can play an important role in international liquidity. By providing a source of liquidity, these transactions can help to reduce the risk of financial instability.
- Capital Market Instruments: Capital market instruments, such as bonds and stocks, can be used to provide a source of international liquidity. These instruments can be used to finance long-term investments, as well as to provide short-term financing for international transactions.
Summary: International liquidity is an important factor in the global economy, and involves a variety of approaches and measures. These include balance of payments, exchange rate adjustments, foreign exchange reserves, credit and debit transactions, and capital market instruments. These measures all play a role in ensuring that a country's financial system remains stable and that international trade and investment can continue to flow freely.
Footnotes
- ↑ International liquidity cycles to developing countries in the financial globalization era 2008
- ↑ Loose use of liquidity just confuses the issue 2007
- ↑ International Liquidity management since the financial crisis 2013
- ↑ International Liquidity management since the financial crisis 2013
- ↑ Perspectives: International Liquidity 2007
- ↑ International Liquidity: THe Fiscal Dimension 2011
| International liquidity — recommended articles |
| Money emission — Net Borrower — Capital flow — Sovereign guarantee — Deposit rate — Price stability — Currency Convertibility — Creation of money — European monetary system |
References
- Biancareli A. M. (2008), International liquidity cycles to developing countries in the financial globalization era, State University of Campinas, Brasil
- Grenville S. (2007), Perspectives: International Liquidity, Lowy Institute for international policy, Sydney, Australia
- Grenville S. (2007), [https://archive.lowyinstitute.org/sites/default/files/pubfiles/Grenville%2C_Loose_use_of_liquidity_1.pdf Loose use of liquidity just confuses the issue, Australian financial review, Australia
- Moessner R., Allen W. (2013), International Liquidity management since the financial crisis, Cass Business School and Bank for International Settlements
- Obstfeld M. (2011), International Liquidity: THe Fiscal Dimension, National Bureau of Economic Research, Cambridge, MA02138
Author: Wojciech Ślusarczyk
