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Lenders of Last Resort in a Globalized World

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  • Obstfeld, Maurice

Abstract

The recent financial crisis teaches important lessons regarding the lender-of-last resort function. Large swap lines extended in 2007-08 from the Federal Reserve to other central banks show that the classic concept of a national last-resort lender 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 has a key role to play in the constellation of lenders of last resort. As the income-level and institutional divergence between emerging and mature economies shrinks over time, the IMF may even evolve into a global last-resort lender that channels central bank liquidity where it is needed. The IMF?s 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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  • Obstfeld, Maurice, 2009. "Lenders of Last Resort in a Globalized World," CEPR Discussion Papers 7355, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7355
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    Cited by:

    1. Feroldi Valentina & Gaffeo Edoardo, 2014. "At the Core of the International Financial System," Global Economy Journal, De Gruyter, vol. 14(2), pages 1-26, April.
    2. Obstfeld, Maurice, 2010. "The immoderate world economy," Journal of International Money and Finance, Elsevier, vol. 29(4), pages 603-614, June.
    3. Bagus, Philipp & Howden, David, 2014. "Central Bank Insolvency: Causes, Effects and Remedies," MPRA Paper 79605, University Library of Munich, Germany.
    4. Eduardo Fernandez-Arias, 2010. "Multilateral Safety Nets for Financial Crises," Research Department Publications 4668, Inter-American Development Bank, Research Department.
    5. Hiroshi Fujiki, 2013. "Policy Measures to Alleviate Foreign Currency Liquidity Shortages under Aggregate Risk with Moral Hazard," The Japanese Economic Review, Japanese Economic Association, vol. 64(4), pages 504-536, December.
    6. Maurice Obstfeld, 2010. "Expanding gross asset positions and the international monetary system," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-478.
    7. Shigenori Shiratsuka & Wataru Takahashi & Kozo Ueda, 2009. "2009 International Conference "Financial System and Monetary Policy Implementation" Summary," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 27(1), pages 1-18, November.
    8. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    9. Agnès Bénassy-Quéré & Benoît Coeuré & Pierre Jacquet & Jean Pisani-Ferry, 2009. "The Crisis: Policy Lessons and Policy Challenges," Working Papers 2009-28, CEPII research center.
    10. Kok, Seng Kiong & Akwei, Cynthia & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "On the regulation of the intersection between religion and the provision of financial services: Conversations with market actors within the global Islamic financial services sector," Research in International Business and Finance, Elsevier, vol. 59(C).
    11. Emmanuel Carré & Laurent Le Maux, 2018. "Globalisation financière et Dollar Swap Lines : la Réserve fédérale et la Banque centrale européenne durant la crise de 2007-2009," Working Papers hal-01933930, HAL.
    12. Mohamed Z. M. Aazim & N. S. Cooray, 2012. "Monetary Policy and Yield Curve Dynamics in an Emerging Market: Sri Lankan Perspectives," South Asian Journal of Macroeconomics and Public Finance, , vol. 1(1), pages 25-56, June.
    13. 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.
    14. Shigenori Shiratsuka & Wataru Takahashi & Kozo Ueda, 2009. "Financial System and Monetary Policy Implementation: Summary of the 2009 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," IMES Discussion Paper Series 09-E-20, Institute for Monetary and Economic Studies, Bank of Japan.
    15. Gurbachan Singh, 2015. "Possible Market for Credit Lines to Mitigate Sudden Stop: Theory and Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 4(2), pages 205-232, December.
    16. Schoenmaker, Dirk & Siegmann, Arjen, 2014. "Can European bank bailouts work?," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 334-349.
    17. James Pinnington & Maral Shamloo, 2016. "Limits to Arbitrage and Deviations from Covered Interest Rate Parity," Discussion Papers 16-4, Bank of Canada.
    18. Mohamed Z. M. Aazim & Nawalage S. Cooray, 2010. "Monetary Policy and Yield Curve Dynamics in an Emerging Market: Sri Lankan Perspectives," Working Papers EMS_2010_11, Research Institute, International University of Japan.

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    More about this item

    Keywords

    Central banking; Financial crisis; International monetary fund; International monetary system; Lender of last resort;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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