The External Liquidity of an Advanced Country [antikvár]

THE EXTERNAL LIQUIDITY OF AN ADVANCED COUNTRY' 1. INTRODUCTION The term liquidity is gradually taking on a somewhat more precise and commonly accepted meaning. At tlie beginning, as so often happens in economic discussion, references to "the liquidity problem" were picked up, like a piece of shiny quartz, by us savages in government service or the press and brandished or carried around vi'ith us as a talisman until the wiser men in the village began to examine the shiny concept to identify its content and determine whether it could take on a fine cutting edge. Through careful analysis, considerable progress already has been made in defining a meaningful concept of liquidity, comparing it with the somewhat narrower but likewise slippery concept of reserves, and separating liquidity itself from the question of whether its availability is adequate or in shortage. Regarding the latter point, it is becoming increasingly understood that the relationship between a country's liquidity position and other economic variables, and the manner in which this relationship may change over time, are more complex than at first presumed. Analysis of these latter questions, as well as the more heated discussion of various prescribed remedies for putative deficiencies in liquidity, is of course being intensively pursued. In the present article, with the aid of the now more clearly articulated concept of external liquidity, the pertinent relationships to other financial phenomena are further explored with the hope of adding to the understanding of these functional relationships and their policy implications. In method, the exposition will be primarily theoretical. It will, however, be illustrated by reference from time to time to statistical material assembled in the Annex. The statistics tabulated there relate to the countries known as the Group of Ten^ and are " The author wishes to acknowledge his appreciation to the Secretariat of the Organization for Economic Cooperation and Development (O.E.C.D.), and especially to M. Raoul Gross of its Economics and Statistics Department, for making available and advising on the use of balance-of-payments data. M. Serge R. Foy assisted the author very effectively in preparing tlie tables and charts. ^ More precisely, the series cover the ten I.M.F. member countries which entered into the Special Borrowing Arrangement with the Fund (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, United Kingdom, and United States) plus Switzerland. See International Monetary Fund, Summary Proceedings, Annual Meeting, 1962, p. 19.