Financial intermediation and fragility: the role of the periphery

Ramaa Vasudevan

International Review of Applied Economics, 2010, vol. 24, issue 1, 57-74

Abstract: A peculiar feature of the present international economy is that the leading 'hegemonic' country, USA, has a large and mounting external deficit which it finances by issuing debt in its own currency. The US can be seen to be at the apex of a pattern of triangular payments recycling the surpluses of creditor countries to debtor countries in the periphery. The paper shows, within a stock-flow-consistent framework, how capital flight from debtor periphery countries, by precipitating a shift from assets denominated in domestic currency to those denominated in dollars, acts like a safety valve for the international monetary system.

Keywords: global imbalances; international financial system; financial intermediation; Minskian fragility; core-periphery relations (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1080/02692170903424281

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