International Liquidity Management Since the Financial Crisis

Richhild Moessner & William A. Allen

Published: December 2015

This article discusses how international liquidity management has been affected by the recent crisis. It notes that since the Bretton Woods system collapsed in 1971 it was expected that the demand for international reserves would diminish, since countries were no longer obliged to sell foreign currencies in case of need to support their own currencies in foreign exchange markets. However, international reserves increased in total from 3.1% of world gross product at the end of 1970 to 16.7% at the end of 2013. The paper explains this phenomenon in the context of the global demand for liquidity up to and after the global financial crisis of 2008-09. Different means of providing international liquidity assurance are assessed and the paper concludes that without an international lender of last resort, the world financial structure remains vulnerable to a new liquidity crisis.