Can there be an International Lender‐of‐Last‐Resort?

Forrest Capie

International Finance, 1998, vol. 1, issue 2, 311-325

Abstract: A proper understanding of the term lender‐of‐last‐resort shows that there can be no international version. After outlining the nature of financial crises, the lender‐of‐last‐resort is defined, and its origins traced in the history of thought and in British experience in the nineteenth century. A lender‐of‐last‐resort is what it is by virtue of the fact that it alone provides the ultimate means of payment. There is no international money and so there can be no international lender‐of‐last‐resort. The function of such a lender is to provide the market with liquidity in times of need, and not to rescue individual institutions. Such rescues involve too much moral hazard. International institutions are invariably focused on one ‘customer’– a country in difficulties – and so violate this rule of the lender‐of‐last‐resort.

Date: 1998
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