To begin with, we analyzed the contrasting structure of the US and Japan's international investment positions (IIPs) and their asymmetric movements of “valuation effects” derived from different IIP structures (exorbitant privilege and duty) before and after the global financial crisis (GFC). Then, we realized that a significant impact on the GFC was not current account imbalances, which are equal to the net capital flows from Asian surplus countries to the US as a deficit country (global saving glut), but the gross capital flows between the US and Europe, both of which run current account deficits. Finally, we investigated the idea that the gross capital flows from the US to Europe represented the raising of wholesale funding through the US money market funds (MMFs) by European banks' US branches and subsidiaries and then shipping it to their headquarters. From the viewpoint of the banking sector, these gross capital flows are in a large part regarded as global liquidity, especially non-core liabilities supplied by the US shadow banking system.
JEL Classification:F32, F33, G01