Global liquidity is going to rise again

Global liquidity has been falling since 2017 under the effect of declining foreign exchange reserves in China and emerging countries, the end of quantitative easing and then the reduction in the size of the Federal Reserve’s balance sheet in the United States, and the end of quantitative easing in the euro zone and the United Kingdom. This has given rise to fears that the contraction in global liquidity would have a negative impact on financial markets. But these fears are now dissipating, as global liquidity is now rising again on the back of: The stabilisation of foreign exchange reserves in emerging countries and China; The Federal Reserve’s liquidity injections to ease tensions in the interbank market; The resumption of quantitative easing in the euro zone. The central bank community has therefore decided to return to a strategy of global liquidity expansion, which may be viewed positively (no risk of a liquidity crisis) or negatively (the world is on a liquidity drip).