Liquidity Management and the Reform of the International Monetary System

As the world economy has overcome recession and resumes vigorous growth, the central task of policymakers going forward is to avoid the re-occurrence of financial excesses. Effective prevention of future crises requires watching out for excessive liquidity. Central banks can reduce the likelihood of liquidity excesses and deliver price stability by giving more weight and attention to benchmark rules. This essay comments on possibilities to improve the stabilization performance of these rules by interest and exchange rate policies, macro-prudential measures and better coordination between central banks and regulatory and supervisory authorities.