The Fed Swap Lines and the Global Lender of Last Resort: The Politics of International Monetary Relations

17 Pages Posted: 5 Aug 2013

See all articles by Hyoung-kyu Chey

Hyoung-kyu Chey

National Graduate Institute for Policy Studies (GRIPS)

Date Written: 2013

Abstract

During the 2008 global financial crisis the US Federal Reserve unprecedentedly established temporary reciprocal swap lines with four emerging market economies, as well as with a handful of advanced economies, thereby acting as a true global lender of last resort for US dollars. This study analyses the Fed’s motivations for this historic action, calling particular attention to the ‘high politics’ involved in it in contrast to the existing literature that generally stresses the US policy goal of protecting US financial interests. It argues that as the issuer of the dollar, the key international currency, the United States used these swap lines as an instrument to maintain its clout in the newly-emerging system of global economic governance led by the Group of Twenty, in a peculiar situation in which it faced significant conflicts with other major states over how to reform the global financial architecture. This argument implies a low likelihood of the Fed acting as a global lender of last resort for emerging market economies again in future crises, and thus suggests a need for strengthening the global financial safety net.

Keywords: currency swap, Federal Reserve, global financial safety net, international lender of last resort, reserve currency, swap line

JEL Classification: F33, F59

Suggested Citation

Chey, Hyoung-kyu, The Fed Swap Lines and the Global Lender of Last Resort: The Politics of International Monetary Relations (2013). APSA 2013 Annual Meeting Paper, American Political Science Association 2013 Annual Meeting, Available at SSRN: https://ssrn.com/abstract=2299628

Hyoung-kyu Chey (Contact Author)

National Graduate Institute for Policy Studies (GRIPS) ( email )

7-22-1 Roppongi
Minato-ku
Tokyo, 106-8677
Japan

HOME PAGE: http://www.grips.ac.jp/list/en/facultyinfo/chey_hyoung-kyu/

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