LIQUIDITY TALK. THE ECB & M3
[Latest Global Dollar Liquidity Measure: +14.16% annual growth rate; latest Endogenous Liquidity Index: +11.79%]

There is a healthy debate going on at the European Central Bank over the relevance of M3 as an indicator of future inflation trends. According to Financial Times' Ralph Atkins, "some ECB insiders have suggested that the usefulness of such data has been undermined by innovation and the complexity of financial markets, and that the monetary pillar will eventually be merged into the ECB's general analysis of the real economy".

Here at the Global Liquidity Blog we tend to agree with the view that M3 will become increasingly ... irrelevant. The further the euro acts as an international reserve currency, the less the value of M3 as an inflation barometer. As more countries move to the euro as an international reserve asset, purely "domestic" monetary indicators —such as M3— are bound to loose relevance. Rember 1998 in the U.S.