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The lender of last resort function under a currency board : the case of Argentina

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Author Info
Caprio, Gerard Jr.
Dooley, Michael
Leipziger, Danny
Walsh, Carl

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Abstract

Within the current rules of the game, Argentina's central bank (BCRA) is charged with being the lender of last resort as well as providing full convertibility between pesos and U.S. dollars - two objectives with one instrument, namely, reserves. Within those rules, it may be well that the balance of responsibilities needs to shift. Complete dollarization can significantly reduce risks but not entirely eliminate them. If the BCRA can concentrate more on building up reserves and helping to ward off crises of confidence in the currency, perhaps the banking system can protect itself better from liquidity shocks. But this will require, among other things, consolidation of the sector (which could give it greater access to outside liquidity) and prudential strengthening of the system. Triage of weaker banks should continue and not await another crisis. More experience with the new liquidity policy is needed and so is reform of the settlement system, as it affects the functioning of the interbank market, which is essential for containing crises. Essentially, however, no grand solution seems to exist for the problems that seem inevitable in a system where the central bank is also the currency board. Argentina's strategy must therefore turn on actively strengthening its banking systems to reduce the risks of insolvency.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1648.

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Date of creation: 30 Sep 1996
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Handle: RePEc:wbk:wbrwps:1648

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Keywords: Financial Intermediation; Payment Systems&Infrastructure; Banks&Banking Reform; Financial Crisis Management&Restructuring; Economic Theory&Research; Banks&Banking Reform; Financial Intermediation; Financial Crisis Management&Restructuring; Economic Theory&Research; Banking Law;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Richard W. Kopcke, 1999. "Currency boards: once and future monetary regimes?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 21-37. [Downloadable!]
  2. Michael P. Dooley & Inseok Shin, 2000. "Private Inflows when Crises are Anticipated: A Case Study of Korea," NBER Working Papers 7992, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Roberto Chang & Andres Velasco, 1998. "Financial crises in emerging markets: a canonical model," Working Paper 98-10, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  4. Barry Eichengreen, 1998. "Exchange Rate Stability and Financial Stability," Open Economies Review, Springer, vol. 9(1), pages 569-608, January. [Downloadable!] (restricted)
    Other versions:
  5. Michael P. Dooley, 1997. "Apertura financiera y retos de políticas," RES Working Papers 4103, Inter-American Development Bank, Research Department. [Downloadable!]
  6. Jiro Honda & Liliana Schumacher, 2006. "Adopting Full Dollarization in Postconflict Economies: Would the Gains Compensate for the Losses in Liberia?," IMF Working Papers 06/82, International Monetary Fund. [Downloadable!]
  7. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Caprio Jr., Gerard, 1997. "Safe and sound banking in developing countries : we're not in Kansas anymore," Policy Research Working Paper Series 1739, The World Bank. [Downloadable!]
  9. Corrinne Ho, 2002. "A survey of the institutional and operational aspects of modern-day currency boards," BIS Working Papers 110, Bank for International Settlements. [Downloadable!]
  10. Maria Concetta Chiuri & Giovanni Ferri & Giovanni Majnoni, . "The Macroeconomic Impact Of Bank Capital Requirements In Emerging Economies: Past Evidence To Assess The Future," series 0002, Dipartimento di Scienze Economiche - Università di Bari. [Downloadable!]
    Other versions:
  11. Barry Eichengreen, 1998. "International Economic Policy in the Wake of the Asian Crisis," Center for International and Development Economics Research, Working Paper Series 1019, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  12. PONSOT, Jean-François, 2000. "Le Currency Board : les contraintes de financement et d'ajustement de la convertibilité intégrale," LATEC - Document de travail - Economie (1991-2003) 2000-10, LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS UMR 5118, Université de Bourgogne. [Downloadable!]
  13. Michael P. Dooley, 1997. "Financial Liberalization and Policy Challenges," RES Working Papers 4102, Inter-American Development Bank, Research Department. [Downloadable!]
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