What is liquidity - its pros and cons

The liquidity indicator is one of the main indicators of the state of the economy. On a global scale, a term such as "international currency liquidity" is used, which indicates the ability of states to fully meet their debt obligations. If the economy of a particular country is stable for a considerable time and has a tendency to increase, then it is recognized as solvent, which means, in turn, high liquidity of monetary funds invested in the economy.

You can find out what liquidity is by reading the annual consolidated report prepared by the IMF. This organization carries out constant monitoring of the liquidity indicators of the world economies.

To determine the liquidity indicator of the economy, the state should evaluate it according to the following criteria: officially declared gold and foreign currency reserves, availability of state funds in the currency, left in turnover, as well as the country's reputation in the International Monetary Fund.

With a deep analysis of these factors, it is possible to determine exactly whether the economy of the country can meet such requirements as liquidity and solvency at a given time. Analytic of these indicators is usually also handled by independent specialized agencies that continuously collect the required information and compare it, thus creating an objective picture that clearly illustrates the state of the economy of each country.

It was as a result of the work of analysts that it was established that one of the most important components of the monetary system is the control of the IMF not at the world, but, primarily, at the domestic level, which was a real breakthrough in research for economists who spend time and money on Understand what liquidity is.

With the definition of "liquidity" is inextricably linked and the concept of "reserve currency." Such a name is used by any convertible world currency, in which state organizations of several countries prefer to keep their funds.

But not only a currency that has circulation can turn out to be a reserve currency. In the 1970s, the countries of the future Eurozone and the IMF released two new monetary units that were created specifically to be reserved. At first, such a decision seemed right - many countries used these currencies and fully felt what liquidity is. However, soon emerged the disadvantages of innovation. Some states were ineptly using the ECU and SDR (the so-called monetary units), which led to stagnation and illiquidity of their economies, as a result of which both monetary systems were successfully eliminated.

At present, it is possible to find out what liquidity is and why it should be taken into account on a lot of Internet sites, the benefit of financial experts in the world is now greater than deposits frozen on the accounts of Cypriot banks due to the illiquidity of the local economy.