>SPECIAL REPORT (ECONOMIC RESEARCH)

Double liquidity creation since May 2009

Global liquidity has grown too fast since the 1990s; during expansion periods, the main cause of liquidity growth has been the accumulation of official reserves in emerging and oil-exporting countries, aimed at stabilising exchange rates; during recessions, monetary expansion in large OECD countries becomes the main cause of liquidity growth.

We may see a new situation appear, which has been visible since May 2009: double creation of liquidity, both in emerging countries and in large OECD countries. This double liquidity creation is accounted for by a divergence in cyclical situations between emerging countries and OECD countries: recovery in several emerging countries, with capital flows returning to these countries; continued anaemic growth in large OECD countries, accounting for the ongoing highly expansionary monetary policies.

The appearance of this double liquidity creation will further amplify global monetary creation, in all likelihood leading to an increased risk of asset price bubbles and a shift in international capital flows and emerging countries’ exchange rates.

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