Dealing with country diversity: challenges for the IMF credit union model

Gregor Irwin (), Adrian Penalver (), Chris Salmon () and Ashley D. Taylor ()
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Gregor Irwin: Bank of England, Postal: Threadneedle Street London EC2R 8AH
Adrian Penalver: Bank of England, Postal: Threadneedle Street London EC2R 8AH
Chris Salmon: Bank of England, Postal: Threadneedle Street London EC2R 8AH

No 349, Bank of England working papers from Bank of England

Abstract: We develop a model in which countries can protect themselves against shocks by subscribing to a credit union that shares the key features of the International Monetary Fund, or by self-insuring through accumulating reserves. We assess the impact of the increasing heterogeneity of the Fund's membership on the political equilibrium Fund size and hence its effectiveness as a credit union. We find the Fund's existing lending framework is well suited to a world in which its members have homogeneous interests, but as the membership has become more heterogeneous the Fund is increasingly unlikely to provide financing on a sufficient scale to meet the demands of higher-risk members, leading them to rely more heavily on self-insurance. We conclude that the framework governing the Fund's lending operations may no longer be appropriate.

JEL-codes: F33 F34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
Date: 2008-05
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