Although it has now been some time since the world has seen any kind of global banking or liquidity crisis, the potential for one still garners the attention of policy makers.
A thank you to a reader here for pointing me to this report on the Robert Triffin International web site that urges policy makers to add more tools to monitor global liquidity and provide more early warnings of potential crisis. Below is the excerpted introduction to the report which includes a link to the full pdf version of the report.
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Robert Triffin International, Centro Studi sul Federalismo, December 2019
"The cumulative balance sheet effects of a decade of low interest rates, long as well as short, have become very large. This report examines the magnitudes of such effects through the many dimensions of global liquidity. This is not purely a monetary policy phenomenon as regulatory policies, restrictive fiscal policies in some advanced economies and structural factors have all had important impacts.
Several indicators suggest increased financial vulnerabilities and higher risks of destabilising market dynamics. The dollar debt of non-banks outside the United States is at a new record: currency mismatches and leverage in the private sector have increased. The dollar funding of non-US banks looks fragile. Greater reliance on international bond markets has created new, opaque risks. There is widespread unease about the domination of the dollar, and about the inadequacy of the Global Financial Safety Net. The search for alternative multi-currency arrangements continues. But the need to address the risk of a new dollar liquidity crunch is urgent.
International oversight of this issue is at present too fragmented. Policy responses at national level may require action by several bodies – central banks, regulators and Treasuries. The report therefore proposes that the Financial Stability Board, with inputs from the BIS, the IMF, the OECD and others, report regularly on global liquidity to G20 Ministers and Governors so they can act in time to avert a crisis."
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