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Can There Be an International Lender-of-Last Resort?

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  • Capie, Forrest

Abstract

A proper understanding of the term lender-of-last-resort shows that there can be no international version. After outlining the nature of financial crises, the lender-of-last-resort is defined, and its origins traced in the history of thought and in British experience in the nineteenth century. A lender-of-last-resort is what it is by virtue of the fact that it alone provides the ultimate means of payment. There is no international money and so there can be no international lender-of-last-resort. The function of such a lender is to provide the market with liquidity in times of need, and not to rescue individual institutions. Such rescues involve too much moral hazard. International institutions are invariably focused on one "customer"--a country in difficulties--and so violate this rule of the lender-of-last-resort. Copyright 1998 by Blackwell Publishers Ltd.

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  • Capie, Forrest, 1998. "Can There Be an International Lender-of-Last Resort?," International Finance, Wiley Blackwell, vol. 1(2), pages 311-325, December.
  • Handle: RePEc:bla:intfin:v:1:y:1998:i:2:p:311-25
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    Citations

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    Cited by:

    1. Lerrick, Adam & Meltzer, Allan H., 2003. "Blueprint for an international lender of last resort," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 289-303, January.
    2. Shim, Ilhyock & Sharma, Sunil & Chami, Ralph, 2008. "A Model of the IMF as a Coinsurance Arrangement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-41.
    3. G.G. Kaufman, 2000. "Banking and Currency Crises and Systemic Risk: A Taxonomy and Review," DNB Staff Reports (discontinued) 48, Netherlands Central Bank.
    4. Olivier Jeanne & Charles Wyplosz, 2003. "The International Lender of Last Resort. How Large Is Large Enough?," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 89-124 National Bureau of Economic Research, Inc.
    5. Michael Bordo, 2000. "Sound Money and Sound Financial Policy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(2), pages 129-155, December.
    6. Bordo, Michael D. & Schwartz, Anna J., 2000. "Measuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailouts," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 81-167, December.
    7. Thomas D. Willett, 2001. "Restructuring IMF Facilities to Separate Lender of Last Resort and Conditionality Programs: The Meltzer Commission Recommendations as Complements rather than Substitutes," Claremont Colleges Working Papers 2001-28, Claremont Colleges.
    8. George G. Kaufman, 2000. "Banking and currency crisis and systemic risk: lessons from recent events," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 9-28.
    9. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking and the international policy response," BIS Working Papers 291, Bank for International Settlements.
    10. George G. Kaufman, 1999. "Banking and currency crises and systemic risk: a taxonomy and review," Working Paper Series WP-99-12, Federal Reserve Bank of Chicago.
    11. Jean-Marc Figuet, 2000. "Le prêteur en dernier ressort international," Revue d'Économie Financière, Programme National Persée, vol. 56(1), pages 57-75.
    12. Charles Goodhart, 1999. "Myths About the Lender of Last Resort," FMG Special Papers sp120, Financial Markets Group.

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