Safe assets are the lubricant of the financial system. They serve as a store of value, to meet regulatory requirements, and as a pricing benchmark. Some researchers identify a severe and chronic global safe asset shortage; others disagree, while empirical evidence remains ambiguous. In the post-Lehman world, the availability of safe assets entails new policy challenges. While still a potential source for global imbalances, the debate today stretches further to implications for financial stability and economic policy effectiveness.
Topics: Europe