International Research Journal of Finance and Economics, No. 41, pp. 105-120, 2010
Posted: 6 Jan 2011
Date Written: January 4, 2010
The current reform of the International Monetary Fund’s (IMF) lending instruments has transformed the Fund towards an international lender of last resort (ILOLR). Current research discusses various general frameworks for installing an ILOLR. However, it remains unclear how the ILOLR should actually operate. This paper discusses six different options for the construction of an ILOLR that supports central banks during currency crises. The paper concludes that the most cost efficient version of the ILOLR would be direct intervention by the IMF using IMF resources, with the option of using additional reserves from central banks. The paper considers measures of cost efficiency, such as cost of borrowing, intervention, and sterilization and moral hazard problems.
Keywords: International Lender of Last Resort, International Monetary Fund, currency crises
JEL Classification: F02, F33
Suggested Citation: Suggested Citation
Knedlik, Tobias, A Cost Efficient International Lender of Last Resort (January 4, 2010). International Research Journal of Finance and Economics, No. 41, pp. 105-120, 2010. Available at SSRN: https://ssrn.com/abstract=1734741