The lender of last resort function under a currency board: the case of Argentina

Gerard Caprio, Michael Dooley, Danny Leipziger and Carl Walsh

No 1648, Policy Research Working Paper Series from The World Bank

Abstract: Within the current rules of the game, Argentina's central bank (BCRA) is charged with being the lender of last resort as well as providing full convertibility between pesos and U.S. dollars - two objectives with one instrument, namely, reserves. Within those rules, it may be well that the balance of responsibilities needs to shift. Complete dollarization can significantly reduce risks but not entirely eliminate them. If the BCRA can concentrate more on building up reserves and helping to ward off crises of confidence in the currency, perhaps the banking system can protect itself better from liquidity shocks. But this will require, among other things, consolidation of the sector (which could give it greater access to outside liquidity) and prudential strengthening of the system. Triage of weaker banks should continue and not await another crisis. More experience with the new liquidity policy is needed and so is reform of the settlement system, as it affects the functioning of the interbank market, which is essential for containing crises. Essentially, however, no grand solution seems to exist for the problems that seem inevitable in a system where the central bank is also the currency board. Argentina's strategy must therefore turn on actively strengthening its banking systems to reduce the risks of insolvency.

Keywords: Financial Intermediation; Payment Systems&Infrastructure; Banks&Banking Reform; Financial Crisis Management&Restructuring; Economic Theory&Research; Banks&Banking Reform; Financial Intermediation; Financial Crisis Management&Restructuring; Economic Theory&Research; Banking Law (search for similar items in EconPapers)
Date: 1996-09-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi0page.pdf (application/pdf)

Related works:
Journal Article: The lender of last resort function under a currency board: The case of Argentina (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:1648

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().