International Reserves and Swap Lines in Times of Financial Distress: Overview and Interpretations
Aizenman, Joshua | February 2010
Abstract
In this paper I review 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).
Citation
Aizenman, Joshua. 2010. International Reserves and Swap Lines in Times of Financial Distress: Overview and Interpretations. © Asian Development Bank. http://hdl.handle.net/11540/3780. License: CC BY 3.0 IGO.Keywords
Trade Finance
Risk Financing
Regional Development Finance
Public Finance
Infrastructure Financing
Financing of Infrastructure
Financial Security
Financial Intermediation
Finance And Trade
Enterprise Financing
Trade Regulation
Trade Finance
Regional Trade Agreements
General Agreement On Tariffs And Trade
Taxation
Business Financing
Investment Requirements
Capital Needs
Tax Incentives
Project Risks
Tariff agreements
Customs convetions
Import policy
Export policy
Investments
Finance
Market
Markets
Use tax
Tax administration and procedure
Taxing power
Effect of taxation
Business enterprises
Foreign trade and employment
Mentoring in business
Trade routes
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