The world is awash in liquidity, and that includes central bank coffers. Using IMF’s numbers, the monthly tally of international reserves at central banks around the world shows liquidity rising by 2.5% to a record high in the 12 months through December 2005.
Where is all this central bank liquidity going? Presumably, a fair chunk of it winds up in dollars. In fact, the buck has been climbing once again, giving support to the notion that central banks continue to park reserves in the world’s lone reserve currency. The gloom that hung over the greenback in January has since lifted, with the U.S. Dollar Index rising 2.6% since the selloff on January 23.