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2009 International Conference "Financial System and Monetary Policy Implementation," Keynote Speech, Lenders of Last Resort in a Globalized World

  • Maurice Obstfeld

    (University of California, Berkeley (E-mail: obstfeld@econ.berkeley.edu))

The recent financial crisis teaches important lessons regarding the lender-of-last resort (LLR) function. Large swap lines extended in 2007-08 from the Federal Reserve to other central banks show that the classic concept of a national LLR fails to address key vulnerabilities in a globalized financial system with multiple currencies. What system of emergency international financial support will best help to minimize the likelihood of future economic instability? Acting alongside national central banks, the International Monetary Fund (IMF) has a key role to play in the constellation of LLRs. As the income-level and institutional divergence between emerging and mature economies shrinks over time, the IMF may even evolve into a global LLR that channels central bank liquidity where it is needed. The IMFfs effectiveness would be greatly enhanced by several complementary reforms in international financial governance, though some of these appear politically problematic at the present time.

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Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 27 (2009)
Issue (Month): 1 (November)
Pages: 35-52

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Handle: RePEc:ime:imemes:v:27:y:2009:i:1:p:35-52
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  1. Charles Goodhart & Dirk Schoenmaker, 2009. "Fiscal Burden Sharing in Cross-Border Banking Crises," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 141-165, March.
  2. Joshua D. Coval & Jakub W. Jurek & Erik Stafford, 2009. "Economic Catastrophe Bonds," American Economic Review, American Economic Association, vol. 99(3), pages 628-66, June.
  3. Edwin M. Truman, 2006. "Reforming the IMF for the 21st Century," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr19, May.
  4. Graciela Laura Kaminsky & Sergio L. Schmukler, 2008. "Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles," Review of Finance, European Finance Association, vol. 12(2), pages 253-292.
  5. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2009. "Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008," American Economic Review, American Economic Association, vol. 99(2), pages 480-86, May.
  6. Gabriel Enrique Alberola & José María Serena, 2009. "Sovereign external assets and the resilience of global imbalances," Banco de Espa�a Working Papers 0834, Banco de Espa�a.
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