As the International Monetary Fund and World Bank redouble their warnings on the prospects for global growth, central banks continue to flood the markets with liquidity. The US Federal Reserve began its third round of quantitative easing last month; the European Central Bank is offering unlimited purchases of bonds of troubled eurozone countries. The People’s Bank of China, responding to slowing growth, has cut interest rates repeatedly and trimmed reserve requirements.

It may seem a strange time to worry about a shortage of global liquidity. But precisely this risk looms and, if nothing is done, it will threaten 21st-century globalisation.

The global trading and financial systems require lubrication by an adequate supply of homogeneous assets that can be bought and sold at low cost and are expected to hold their value. For half a century, US Treasury bills and bonds played this role. Their unique combination of safety and liquidity has made them the dominant vehicle for bank funding globally: it explains why the bulk of foreign exchange reserves are held in dollar form, and why the role of dollar credit in financing and settling international trade far exceeds the US share of international merchandise transactions.