Global shortage of funds

Other Names:
Inadequate level of world monetary reserves
World liquidity shortage
Low world reserve funds
Inadequate global financial reserves

The tendency for world reserves to rise more slowly than the requirements of world trade has persisted for some time. This means that one country can only increase its reserves at the expense of another; and the difficulty is compounded if reserves in the more traditional sense are actually falling. Deficit countries feel compelled to introduce restrictions on their trade and aid, including aid-tying, which might not be necessary if reserve positions were less tight. Surplus countries, even if they are ready to forgo further additions to their reserves, certainly do not wish to lose reserves, and therefore tend to be more restrictive in their policies and more reluctant to contemplate changes in their exchange rates than they might be if the general expansion of business activity, international trade and world reserves were sufficient to accommodate the needs of all. Inadequate reserves can also be a contributory factor to crises of confidence.


Liquidity, in the sense of official reserves, is not itself used in financing external transactions; this is done through the earning of foreign currencies and through a wide array of credit instruments. Its functions are rather to defend the rates of exchange of the national currency and to settle residual accounts when foreign exchange receipts fall short of accruing external obligations. The need for liquidity is thus dependent on the flexibility of exchange rates; the nearer to a free float the less the back-up reserve requirement. The need for international liquidity increases with the degree of autonomy in national policies and with the rigidity of the exchange rates linking national currencies. Notwithstanding the marked post-war decline in the ratio of reserves to world imports, and the recent absolute decline in world reserves, it would be difficult to say at precisely what point reserves could be considered adequate and at what point they might become inadequate. It could, perhaps, be said that it would be a symptom of inadequate liquidity if the developed world, taken as a whole, were maintaining restraints upon its rate of growth, upon its imports of goods and services, or upon its export of capital and other forms of development finance, that would not seem to be necessary in terms of the requirements of domestic monetary stability alone.

Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic GrowthGOAL 10: Reduced InequalityGOAL 16: Peace and Justice Strong InstitutionsGOAL 17: Partnerships to achieve the Goal
Problem Type:
F: Fuzzy exceptional problems
Date of last update
16.10.2020 – 17:44 CEST