Page 201 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes Although the IDA’s resources are separate from the IBRD, it has no separate staff. Loans are
made for similar projects as those carried out by IBRD, but at easier and more favourable credit
terms.
As mentioned earlier, World Bank/IDA assistance, historically, has been for developing
infrastructure. The present emphasis seems to be on helping the masses of poor people in the
developing countries become more productive and take an active part in the development
process. Greater emphasis is being placed on improving urban living conditions and increasing
productivity of small industries.

Did u know? The IDA was formed in 1960 as a part of the World Bank Group.

10.2 international liquidity

The concept of international liquidity is associated with international payments. These payments
arise out of international trade in goods and services and also in connection with capital
movements between one country and another. International liquidity refers to the generally
accepted official means of settling imbalances in international payments.

In other words, the term ‘international liquidity’ embraces all those assets which are internationally
acceptable without loss of value in discharge of debts (on external accounts).
In its simplest form, international liquidity comprises of all reserves that are available to the
monetary authorities of different countries for meeting their international disbursement. In short,
the term ‘international liquidity’ connotes the world supply of reserves of gold and currencies
which are freely usable internationally, such as dollars and sterling, plus facilities for borrowing
these. Thus, international liquidity comprises two elements, viz., owned reserves and borrowing
facilities.

Under the present international monetary order, among the member countries of the IMF, the
chief components of international liquidity structure are taken to be:
1. Gold reserves with the national monetary authorities - central banks and with the IMF.
2. Dollar reserves of countries other than the U.S.A.

3. £-Sterling reserves of countries other than U.K.
It should be noted that items (2) and (3) are regarded as ‘key currencies’ of the world
and their reserves held by member countries constitute the respective liabilities of the U.S.
and U.K. More recently Swiss francs and German marks also have been regarded as ‘key
currencies’.

4. IMF tranche position which represents the ‘drawing potential’ of the IMF members; and
5. Credit arrangements (bilateral and multilateral credit) between countries such as ‘swap
agreements’ and the ‘Ten’ of the Paris Club.

Of all these components, however gold and key currencies like dollar today entail greater
significance in determining the international liquidity of the world.
However, it is difficult to measure international liquidity and assess its adequacy. This depends on
gold and the foreign exchange holdings of a country, and also on the country’s ability to borrow
from other countries and from international organisations. Thus, it is not easy to determine the
adequacy of international liquidity whose composition is heterogeneous.

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