Liquidity refers to the speed and convenience in which a asset can be exchanged to obtain other goods. Compared with other objects, the metal-cast (gold, silver, copper etc.) coins have the best liquidity. Difficulties in bartering are a result of poor liquidity. The quantity of money is the foundation of the liquidity in any economic system. "Liquidity surplus" results in the inflation and "liquidity shortage" in deflation. Any dramatic changes in the quantity of money (deflation/inflation) will therefore have a "liquidity impact" on the economy. This paper, deals with the concept of liquidity. The "dual liquidity dilemma" in medieval Chinese society will be examined. This refers to the co-existence and the intertwining of deflation and inflation. It is argued that the dilemma was the consequence of the following factors: insufficient currency supplies, low value money repeatedly being minted, frequent policy change, and massive coin cutting. The dilemma was characterized with the pattern of "the alternative inflation disturbance in the long-term deflation." This dual liquidity dilemma is supported by both textual resources and archeological evidence. This dilemma in medieval China was essentially caused by improper monetary policies in many political regimes. It was one of the major forces in shaping the socio-economic structure of this time period.
