The International Lender of Last Resort: How Large is Large Enough?

40 Pages Posted: 18 Jul 2001

See all articles by Olivier Jeanne

Olivier Jeanne

International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)

Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001

Abstract

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.

Keywords: Lender of last resort, bank runs, multiple equilibria, credit crunch, exchange rate regime, dollarization, deposit insurance, Asian crisis, International Monetary Fund

JEL Classification: F32, F33, G21

Suggested Citation

Jeanne, Olivier and Wyplosz, Charles, The International Lender of Last Resort: How Large is Large Enough? (July 2001). Available at SSRN: https://ssrn.com/abstract=276780

Olivier Jeanne (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

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Ecole Nationale des Ponts et Chaussees (ENPC) ( email )

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+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

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Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

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Geneva, CH-1211
Switzerland
+41 22 908 5946 (Phone)
+41 22 733 3049 (Fax)

HOME PAGE: http://heiwww.unige.ch/~wyplosz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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