The announcement before Christmas by the world’s central banks of further measures to help restore liquidity to money markets was at first greeted with euphoria.

But, as with the US Federal Reserve’s August 17 discount rate cut, it was not long before the measures were viewed as likely to be inadequate to deal with the size of the problem. The shift by the Fed to providing term liquidity via auctions has taken a leaf out of the European Central Bank’s liquidity management manual. It may help. But with euro-area money markets having remained stressed – even after the extraordinarily big liquidity injections over the year end – it seems that money market liquidity provision alone is unlikely to solve the problem.