International Reserves and Swap Lines in Times of Financial Distress: Overview and Interpretations
Joshua Aizenman
No 192, ADBI Working Papers from Asian Development Bank Institute
Abstract:
In this paper the author reviews the use of precautionary measures aimed at mitigating emerging markets' exposure to fragility associated with financial integration. The discussion draws possible lessons from the ongoing global liquidity crisis. The fear of losing international reserves (IR) constrained most emerging markets more than the fear of floating. The fear of using IR during a crisis suggests that emerging markets (EMs) opt to revisit the gains from financial globalization. High levels of IR may be required for the self insurance offered by those reserves to be effective. Under such circumstances, countries may benefit by supplementing the hoarding of IR with Pigovian tax-cum-subsidy policies. These policies would reduce external borrowing, and would fund the marginal hoarding of IR. The fear of losing IR also suggests a greater demand for regional pooling arrangements and swap lines as well as possible new roles for international financial institutions (IFI).
Keywords: deleveraging; fire-sale congestion externality; swap lines; tax-cum-subsidy; international reserves; Financial Distress (search for similar items in EconPapers)
JEL-codes: F15 F21 F32 F36 G15 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-02-05
New Economics Papers: this item is included in nep-ifn
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Related works:
Working Paper: International Reserves and Swap Lines in Times of Financial Distress: Overview and Interpretations (2010) 
Working Paper: International Reserves and Swap Lines in Times of Financial Distress: Overview and Interpretations (2010) 
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