Global Financial Safety Nets: Where Do We Go from Here?

39 Pages Posted: 25 Apr 2011

See all articles by Eduardo Fernandez-Arias

Eduardo Fernandez-Arias

Inter-American Development Bank (IDB)

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

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Date Written: November 2010

Abstract

An analysis of the performance of the global financial safety net during the 2008-2009 crisis, and an evaluation of its new components, indicates that, from an emerging markets perspective, the net remains full of holes despite recent stitches. This paper therefore proposes an effective and workable international lender of last resort (ILLR) for systemic liquidity crises based on: i) an automatic trigger to access the facility; ii) unilateral country prequalification to the facility during Article IV consultations; and iii) liquidity funded by the world’s “issuers of last resort. ” These principles would support a reliable and broad-based ILLR without the carrying costs associated with inefficient reserve hoarding, which would actually work as an effective preventive facility with minimal room for moral hazard.

Suggested Citation

Fernandez-Arias, Eduardo and Levy-Yeyati, Eduardo Levy, Global Financial Safety Nets: Where Do We Go from Here? (November 2010). IDB Working Paper No. 80, Available at SSRN: https://ssrn.com/abstract=1818759 or http://dx.doi.org/10.2139/ssrn.1818759

Eduardo Fernandez-Arias (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States
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Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

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