Global liquidity: new CGFS report

Press release  | 
13 November 2011

The Committee on the Global Financial System (CGFS) has today released its report on Global liquidity - concept, measurement and policy implications. The report was prepared by an ad-hoc group chaired by Jean-Pierre Landau of the Bank of France.

Global liquidity has become a key focus of international policy debates, reflecting its critical importance as a factor affecting international financial stability. This report analyses global liquidity from a financial stability perspective, using two distinct concepts. One is official liquidity, which is ultimately provided by central banks. The other is private sector liquidity, which is created largely through the cross-border operations of banks and other financial institutions.

Private sector liquidity can give rise to international spillovers as many financial institutions provide liquidity across borders. This international component of liquidity can be a potential source of instability because of its own dynamics or because it amplifies domestic imbalances or cyclical movements.

Policy responses to global liquidity call for a consistent framework that considers all phases of global liquidity cycles, countering both surges and shortages. Measures to prevent unsustainable booms in private liquidity are linked with micro- and macroprudential policies as well as the financial reform agenda. Country-specific or regional liquidity shocks, in turn, may be addressed through self-insurance in the form of precautionary foreign exchange reserves holdings or existing arrangements that redistribute liquidity. However, truly global liquidity shocks necessitate direct interventions in amounts large enough to break downward liquidity spirals. Only central banks have this ability.

Central banks have a key role to play in all these policy areas. Working through the cooperative Basel process, they remain well placed to address future surges and shortages in global liquidity.

CGFS Chairman Mark Carney, presenting the report, said that it should provide relevant and timely input to international initiatives related to global liquidity and the international monetary system.

Specific questions regarding the report may be sent to the Secretariat of the CGFS by e-mail ( or fax (+41 61 280 9100).