Global Liquidity and the International Monetary System

Abstract

The series of crises in the global economy: Global Financial Crisis, European Sovereign Debt Crisis and the COVID-19 crisis exposed the severe symmetries in the international monetary system. With the rising share of dollar borrowings from the part of the non-financial corporations by the emerging market economies in the course of the low interest environment in the global economy till a year back, there has been large demand for dollar liquidity towards rollover of the liabilities.As per the 2022 Triennial Survey of the Bank for International Settlements, the daily foreign exchange turnover is at $7.5 trillion. Understandably, the share of foreign exchange swaps has risen to 51%. Indeed as the developing countries were forced to resort to the sales of US Treasuries in March 20220, the Fed Reserve has to intervene opening up facilities of swap lines and repo financing. Even as the demand for dollar liquidity was met both during the time of the global financial crisis as well as during the outbreak of COVID-19, the same was due to initiatives from the part of the Federal Reserves through swap line facilities as well as repo facilities. In the contemporary global economy where the resources at the command of the IMF in terms of the total external liabilities of the world has been on a decline in comparison to the eighties, wouldn’t it be desirable to think in terms of reform of the international monetary system. This paper explores the same.