In 1993, after thousands of hours of committee work by economists and bureaucrats from all nations, the United Nations, with the blessing of the International Monetary Fund, issued a recommendation for a System of National Accounts (known as SNA 1993).

Compared to the Federal Reserve National Flow of Funds Accounts, the United Nations SNA 1993 is not a product that is ready for prime time.

Whereas the Federal Reserve statistics evolved from brilliant insights by the founder of flow of funds accounting, Morris Copeland, in the 1940s and 1950s, based on practical concepts and served with sufficient detail by financial instrument and market sector to be useful, the United Nations product has been jumbled together by macro-economists, with seemingly slight interest in financial markets.

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It used to be that the term ‘international liquidity’ meant the relative amount of resources available to a nation’s monetary authorities that could be used to settle a balance of payments deficit.

In the days of the gold standard, this would mean access to gold that could be used to redeem a nation’s currency held by foreigners.

After Breton Woods and the advent of the dollar-gold exchange standard, liquidity came to mean access to dollars, either held as reserves or as credit lines, or the SDR system maintained by the International Monetary Fund.

After 1971, with the abandonment of the dollar-gold exchange standard, as the world entered an era of ‘managed’ exchange rates, some ‘floating’, some ‘pegged’, ‘international liquidity’ came to mean the resources available to national monetary authorities to maintain the value of their currencies as required by their exchange management programs.

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Despite constant news about the weakening of the Dollar against the Euro, the American currency still is strong compared to the currency of many of its trading partners in Latin America and Asia. The Brazilian Real is a case in point.

Although the dollar has fallen about 20% compared to the Real since 2002, this decline was almost entirely due to recovery from a collapse of the Real after the election of Luiz Inacio Lula da Silva, a leftist union leader of the Worker’s Party, as president of this large and important country.

As an self-proclaimed “old friend” of leftist dictators Castro of Cuba and Chaves of Venezuela, the election of President “Lula” sent chills through the international financial markets.

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