What are the merits and differences of the IMF and US Federal Reserve as lender of last resort? Flashcards
1
Q
What are the merits and differences of the IMF and US Federal Reserve as lender of last resort?
A
- Roles as lenders of last resort IMF -
o Global mandate - liquidity support
o Conditional assistance - loans come with structural reforms
o Resource pool - funded by member countries
o Focus on emerging markets & developing economies - primary role to stabilise these economies - Roles as lenders of last resort Fed Res - o Domestic focus w/ global spillovers - via dollar swap lines
o Unilateral decisions - prioritised US interests but impact global markets
o Real-time liquidity - provided almost instantly - Merits of the IMF as a LOLR -
o Global reach
o Crisis prevention - surveillance, advice, and technical assistance
o Pooling of resources - reduces burden on individual nations
o Structured programs - addressing structual issues - ensure long-term stability
o Support for sovereign borrowers - by offering liquidity - Merits of the Federal Reserve as
a LOLR -
o Speed & Flexibility - immediate liquidity during crisis
o Global dollar liquidity - ensure global access to US dollars
o Market confidence - fed interventions help stabilise US and global markets
o Unconditional liquidity - do not require structural reforms - Case studies of their roles -
o IMF = 1997 EAFC, Eurozone
o Fed Res = 2008 GFC, Covid-19 - Challenges & Limitations of IMF -
o Conditionality criticism - can worsen economic hardships
o Resource limitations - may struggle to meet the needs of large-scale global crises
o Slow responses - worsens crises - Challenges & Limitations of Fed Res -
o National focus - prioritises US interests
o Limited to dollar crises
o Sovereignty concerns - some countries may be uncomfortable relying on unilateral institution
