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Evaluating Asian Swap Arrangements

  • Joshua Aizenman

    (Asian Development Bank Institute (ADBI))

  • Yothin Jinjarak
  • Donghyun Park

Motivated by the unprecedented rise of swap agreements between the central banks of developed economies and their developing economy counterparts, this paper evaluates Asian swap arrangements and their association with the build-up of foreign reserves prior to the 2008–2009 global financial crisis. The evidence suggests that there is a limited scope for swaps to substitute for reserves. Furthermore, the selectivity of the swap lines indicates that only countries with significant trade and financial linkages can expect access to such ad hoc arrangements, on a case by case basis. Moral hazard concerns suggest that the applicability of these arrangements will remain limited. However, deepening swap agreements and regional reserve pooling arrangements may weaken the precautionary motive for reserve accumulation.

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Paper provided by East Asian Bureau of Economic Research in its series Governance Working Papers with number 23239.

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Date of creation: Jul 2011
Date of revision:
Handle: RePEc:eab:govern:23239
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  1. Joshua Aizenman & Yothin Jinjarak & Donghyun Park, 2010. "International reserves and swap lines: substitutes or complements?," NBER Working Papers 15804, National Bureau of Economic Research, Inc.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
  3. Michael Dooley & David Folkerts-Landau & Peter Garber, 2009. "Bretton Woods Ii Still Defines The International Monetary System," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 297-311, 08.
  4. Yothin Jinjarak, 2007. "On the Causality between Trade Credits and Imports: Evidence and Possible Implication for Trade Penalties on Debt Defaults," International Economic Journal, Taylor & Francis Journals, vol. 21(3), pages 317-333.
  5. Andrew K. Rose & Mark M. Spiegel, 2002. "A gravity model of sovereign lending: trade, default and credit," Working Paper Series 2002-09, Federal Reserve Bank of San Francisco.
  6. Yin-Wong Cheung & Xingwang Qian, 2009. "Hoarding of International Reserves: Mrs Machlup's Wardrobe and the Joneses," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 824-843, 09.
  7. Aizenman, Joshua & LEE, JAEWOO, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," Santa Cruz Center for International Economics, Working Paper Series qt44g3n2j8, Center for International Economics, UC Santa Cruz.
  8. Aizenman, Joshua & Pasricha, Gurnain, 2009. "Selective Swap Arrangements and the Global Financial Crisis: Analysis and Interpretation," Santa Cruz Department of Economics, Working Paper Series qt2vw7s14s, Department of Economics, UC Santa Cruz.
  9. Joshua Aizenman, 2010. "Hoarding international reserves versus a Pigovian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-9, and a cost benefit analysis," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
  10. Love, Inessa & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2007. "Trade credit and bank credit: Evidence from recent financial crises," Journal of Financial Economics, Elsevier, vol. 83(2), pages 453-469, February.
  11. Aizenman, Joshua & Chinn, Menzie D. & Ito, Hiro, 2010. "The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration," Journal of International Money and Finance, Elsevier, vol. 29(4), pages 615-641, June.
  12. Park, Donghyun & Estrada, Gemma, 2009. "Are Developing Asia’s Foreign Exchange Reserves Excessive? An Empirical Examination," ADB Economics Working Paper Series 170, Asian Development Bank.
  13. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2009. "Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008," NBER Working Papers 14826, National Bureau of Economic Research, Inc.
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