Safe assets play a critical role in an(y) economy. A safe asset is an asset that is (almost always) valued at face value without expensive and prolonged analysis. By design, there is no benefit to producing (private) information about its value, and this is common knowledge. Consequently, agents need not fear adverse selection when buying or selling safe assets. Safe assets can be easily used to exchange for goods or services or for another asset. These short-term safe assets can be money or money-like. A long-term safe asset can store value over time or be used as collateral. Much of human history can be written in terms of the search for and production of safe assets. But the most prevalent, privately produced short-term safe assets, bank debts, are subject to runs, and this has important implications for macroeconomics and for monetary policy.
Global liquidity is a catch-all term that is used to denote the combination of easier financing conditions, capital inflows, and exchange rate appreciation. An approach based on the activities of internationally active financial institutions sheds light on the conceptual underpinnings and the economic mechanisms involved in the transmission of global liquidity. The analysis highlights the role of international funding currencies, especially the US dollar. The analysis also motivates a set of global liquidity indicators based on the size and currency composition of balance sheets.