Answer on Other Management Question for Subramanian
The problem of international liquidity is concerned with the imbalances in the demand for and supply of international liquidity. International liquidity shortage leads to recession in the world economy, whereas international liquidity surplus tends to have an inflationary impact on international economy. Solution to the problem relates to attempts at balancing supply and demand for international liquidity.
In case all the countries have equilibrium in their balance of payments (BOPs), there can be no problem of international liquidity. Secondly, if the national currencies of all the countries become fully convertible, and freely acceptable in international payments, no shortage of international liquidity can arise. Thirdly, if all the deficit countries are allowed to have an unlimited and unconditional access to borrowing and trading, there would have been no problem of international liquidity.
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