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Dealing with country diversity: challenges for the IMF credit union model

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Author Info
Irwin, Gregor () (Bank of England)
Penalver, Adrian () (Bank of England)
Salmon, Chris () (Bank of England)
Taylor, Ashley (London School of Economics)

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Abstract

We develop a model in which countries can protect themselves against shocks by subscribing to a credit union that shares the key features of the International Monetary Fund, or by self-insuring through accumulating reserves. We assess the impact of the increasing heterogeneity of the Fund's membership on the political equilibrium Fund size and hence its effectiveness as a credit union. We find the Fund's existing lending framework is well suited to a world in which its members have homogeneous interests, but as the membership has become more heterogeneous the Fund is increasingly unlikely to provide financing on a sufficient scale to meet the demands of higher-risk members, leading them to rely more heavily on self-insurance. We conclude that the framework governing the Fund's lending operations may no longer be appropriate.

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Paper provided by Bank of England in its series Bank of England working papers with number 349.

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Length: 43 pages
Date of creation: May 2008
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Handle: RePEc:boe:boeewp:0349

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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  1. Kohlscheen, Emanuel & Taylor, Mark P, 2006. "International Liquidity Swaps : Is the Chiang Mai Initiative Pooling Reserves Efficiently ?," The Warwick Economics Research Paper Series (TWERPS) 752, University of Warwick, Department of Economics. [Downloadable!]
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