Supply and demand for money in global markets

Supply and demand for money in global markets

The loanable funds market of any country is linked to the world market through net exports. If a country's net exports are negative, that is, the value of imports is greater than exports, the whole world tends to provide money to that country. In this case, the amount of loanable funds is greater than the national savings of that country. Conversely, if net exports are positive, that is, the value of exports is greater than the value of imports, the amount of loanable funds is less than the country's national savings, and the country is considered a money provider.

The global loanable funds market is defined as the market in which money is exchanged on an international level. This market is characterized by being similar to the capital markets in countries, but the difference is that dealing takes place on a global level and not locally for countries, and supply and demand in this market are determined based on the real interest rate to achieve global balance.

The money supply curve is flat in the loanable funds market, with the central bank determining the quantity of money supplied. While the demand for money changes and is not constant. When interest rates are low, the demand for money increases, and when rates are high, the demand decreases.
Prices change in this way to achieve equilibrium, where the quantity supplied of money becomes equal to the quantity demanded. All countries in the world are currently influenced by each other, as the real interest rate in a country affects the interest rate in the global market. If a country's real interest rate is higher than the global equilibrium interest rate, this results in funds flowing into that country to take advantage of the difference in interest rates. Thus, the money supply increases, and the interest rate falls until equilibrium is achieved