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Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?

  • Barry Eichengreen

The accumulation of international reserves by emerging markets raises the question of how to best utilize these funds. This paper explores two routes through which the pooling of reserves could enhance stability and welfare. First, the reserve pool could be used for emergency lending in response to sudden stops. Second, a portion of the reserve pool along with borrowed funds could be used to purchase contingent debt securities issued by governments and corporations, helping to solve the first-mover problem that limits the liquidity of markets in these instruments and hinders their acceptance by private investors. This paper argues that the second option is more likely to be feasible and productive.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12451.

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Date of creation: Aug 2006
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Publication status: published as Barry Eichengreen, 2007. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," Open Economies Review, Springer, vol. 18(1), pages 27-52, February.
Handle: RePEc:nbr:nberwo:12451
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