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Financial intermediation and fragility: the role of the periphery

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  • Ramaa Vasudevan

Abstract

A peculiar feature of the present international economy is that the leading 'hegemonic' country, USA, has a large and mounting external deficit which it finances by issuing debt in its own currency. The US can be seen to be at the apex of a pattern of triangular payments recycling the surpluses of creditor countries to debtor countries in the periphery. The paper shows, within a stock-flow-consistent framework, how capital flight from debtor periphery countries, by precipitating a shift from assets denominated in domestic currency to those denominated in dollars, acts like a safety valve for the international monetary system.

Suggested Citation

  • Ramaa Vasudevan, 2010. "Financial intermediation and fragility: the role of the periphery," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 57-74.
    • Handle: RePEc:taf:irapec:v:24:y:2010:i:1:p:57-74
    DOI: 10.1080/02692170903424281
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    References listed on IDEAS

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    1. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, October.
    2. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66, National Bureau of Economic Research, Inc.
    3. Charles P. Kindleberger, 2000. "Comparative Political Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112469, December.
    4. Janine Berg & Lance Taylor, 2000. "External Liberalization, Economic Performance, and Social Policy," SCEPA working paper series. 2000-02, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
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    Cited by:

    1. Tarron Khemraj, 2014. "Money, Banking and the Foreign Exchange Market in Emerging Economies," Books, Edward Elgar Publishing, number 15473.
    2. Michael A. Goldstein & Joseph McCarthy & Alexei G. Orlov, 2019. "The Core, Periphery, and Beyond: Stock Market Comovements among EU and Non‐EU Countries," The Financial Review, Eastern Finance Association, vol. 54(1), pages 5-56, February.

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