ABSTRACT
This chapter proposes a critical analysis of the way in which financial professionals, regulators, and academic researchers use the concept of “liquidity”. First, the chapter analyzes this concept in the context of the theories that consider money as a function of exchange or production and as an ideal that constitutes society, and in the practices of monetary policy and the development of digital payment systems. The chapter then studies the use of the concept of liquidity in the financial industry and in financial regulation, exploring in particular the ideas that liquidity is based on homogeneous information shared by all participants, that it is based on participants’ attempts to maximize returns, and that financial markets are neutral institutions serving transactions for all participants equally and therefore serving society at large. In all these cases, the chapter shows that the concept of liquidity can be defined in multiple, sometimes conflicting ways that always refer to moral and political points of view about the social roles of money and finance. Critical finance studies should probably avoid using the concept of liquidity as an analytical tool, unless they clarify the political stance it implies, and hence the limitations it imposes on critique.
