Inadequate mechanism for the creation of liquid reserves
Nature: The essential defect of the international monetary system is that, apart from such additions to reserves as result from intermittent increases in monetary stocks of gold, provision is made for the expansion of liquidity mainly through the deficits of key currency countries, whereas those countries may not be running deficits concurrent with an expansion in world demand for liquid reserves. Moreover, the maintenance of confidence in the system depends on the key currencies being strong, and hence on the key currency countries usually being in external balance, if not in surplus. Without provision for an orderly increase in liquidity to permit financing of a growing volume of trade, economic development is inhibited.
Counter Claim: Despite the slow growth of stocks of monetary gold, world liquidity outside the USA, not including special drawing rights, trebled between 1950 and 1970. Although the increase was especially conspicuous in a few industrial countries, it was general and widespread. This liberal supply of liquidity formed the basis for domestic expansion in most parts of the world and for steady liberalization of exchange controls and trade, which in turn facilitated growth.
Problem Type: F: Fuzzy exceptional problems
Date of last update 01.01.2000 – 00:00 CET