ABSTRACT
This chapter opens up the broader view to financial markets and their infrastructures, which the new Target2-Securities (T2S) system aims at strengthening. It begins by considering an often-emphasised benefit of T2S – the ‘liquidity of collateral’ – and its growing importance since the 2008 financial crisis, due to its role in risk and cash flow management. It further analyses how professionals and regulators struggle with problems of buttressing liquidity in its double nature of collateral velocity and quality or safety. Once again, economic theory turns out to occupy a special place – particularly, the quantity theory of money and modern finance theory. This chapter shows how the ‘new’ problems of liquidity are closely related to those of money, market, and competition, further iterating the connections to market infrastructures and central banks. I rework the notion of ‘sovereignty’ to designate a problem of guaranteeing the safe value of collateral. Contrary to established conceptions, sovereignty in this sense is not limited to states but can also occur with monopolistic agents in the market such as global custodians.
