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Can swap line arrangements help solve the Triffin dilemma? How?

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  • Elena Seghezza

Abstract

The recent massive rise in the currency reserves of emerging countries has once again brought the Triffin dilemma to the fore, albeit different to the past. At all the events, new tools for the creation of international liquidity emerged during the global financial crisis of 2007–08, including bilateral swap line arrangements (BSAs). These arrangements ultimately constitute a form of lending of last resort. Therefore, for emerging countries, they can substitute currency reserves and help resolve the Triffin dilemma. In this manner, the stipulation of BSAs by advanced countries, although motivated by domestic reasons, contributes to international financial stability. Providing access to these arrangements automatically would contradict the principle of constructive ambiguity and the discretion that should be at the base of the lending of last resort also at the international level.

Suggested Citation

  • Elena Seghezza, 2018. "Can swap line arrangements help solve the Triffin dilemma? How?," The World Economy, Wiley Blackwell, vol. 41(10), pages 2691-2708, October.
  • Handle: RePEc:bla:worlde:v:41:y:2018:i:10:p:2691-2708
    DOI: 10.1111/twec.12669
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    File URL: https://doi.org/10.1111/twec.12669
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    Cited by:

    1. Emmanuel Carré & Laurent Le Maux, 2018. "The Federal Reserve's Dollar Swap Lines and the European Central Bank during the global financial crisis of 2007-2009," Post-Print hal-02570211, HAL.

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