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The International Lender of Last Resort. How Large Is Large Enough?

In: Managing Currency Crises in Emerging Markets

  • Olivier Jeanne
  • Charles Wyplosz

This Paper considers how an international lender of last resort can prevent self-fulfilling banking and currency crises in emerging economies. We compare two different arrangements: one in which the international lender of last resort injects international liquidity into financial markets, and one in which its resources are used to back domestic banking safety nets. We argue that these arrangements have very different institutional implications: the first one implies an international lender of last resort with unlimited resources (a global central bank), while the second one could be operated by a limited ‘international banking fund’. This fund, however, would have to be closely involved in the supervision of domestic banking systems. Both arrangements would require important changes in the global financial architecture.

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This chapter was published in:
  • Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, June.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9649.
    Handle: RePEc:nbr:nberch:9649
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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