International liquidity, LDCs and Special Drawing Rights

Abstract

Because countries engage in trade with each other they need to hold balances of an internationally acceptable money in just the same way that an individual who buys and sells goods and services needs to do so. Indeed, it may be said that in principle balances of international money might be entirely held by private traders but, in practice, central banks usually also hold balances of international money. As with the case of domestic money, it is possible to analyse the reasons why individuals and central banks hold international monies in terms of transactions, precautionary and speculative motives.