On the Bailout of Currencies
- 5 Downloads
Special Drawing Rights are reserve assets which ought to provide liquidity in times of a country’s financial distress. It is a potential claim on freely usable currencies of International Monetary Fund member countries. This article examines the possible effects of a global Special Drawing Rights implementation by the International Monetary Fund in case of a collapse of one of the major currencies. The question addressed is if a distressed fiat currency can be bailed out effectively by triggering the designation mechanism to the International Monetary Fund member countries The results indicate that the liquidity benefit per created Special Drawing Rights unit would proportionally increase with the rate of money supply.
KeywordsSDR Monetary policy Foreign exchange Debt Bailout IMF
JEL ClassificationsE40 E42 E50 F01
- Arseneau, David M., (2017), How Would U.S. Banks Fare in a Negative Interest Rate Environment?, Finance and Economics Discussion Series 2017–030. Washington: Board of Governors of the Federal Reserve System, p. 4, https://doi.org/10.17016/FEDS.2017.030, Last accessed: June 6, 2018.
- Bernanke, B., (2017), Monetary Policy in a New Era, Brookings Institution, https://piie.com/system/files/documents/bernanke20171012paper.pdf, p. 14, Last accessed: June 6, 2018.
- Fleming, M. J., & Garbade, K. (2004). Repurchase agreements with negative interest rates. Current Issues in Economics and Finance, 10(5), 6.Google Scholar
- Franklin B., (1729), A modest enquiry into the nature and necessity of paper currency, The Papers of Benjamin Franklin, vol. 1, January 6, 1706 through December 31, 1734, ed. Leonard W. Labaree. New Haven: Yale University Press, 1959, pp. 139–157.Google Scholar
- Hannoun H., (2015), Ultra-low or negative interest rates: What they mean for financial stability and growth, remarks, Bank for International Settlements, at the Eurofi high-level seminar, Riga, April 22, 2015, p. 6. https://www.bis.org/speeches/sp150424.pdf, Last accessed: Sept 29, 2018.
- Hetzel R. L. and Lawler T. A., (1978), The cause of the Dollar depreciation, Federal Reserve Bank of Richmond, Economic Review May/June 1987, p. 16. https://fraser.stlouisfed.org/files/docs/publications/frbrichreview/rev_frbrich197805.pdf, Last accessed: Sept 29, 2018.
- International Monetary Fund, (2001), Financial organization and operations of the IMF, Treasurer’s department, pp.92–93. https://www.imf.org/external/pubs/ft/pam/pam45/pdf/pam45.pdf, Last accessed: Sept 29, 2018.
- International Monetary Fund, (2009a). IMF to make $250 billion SDR allocation on August 28. The IMF and Civil Society. http://www.imf.org/external/np/exr/cs/news/2009/cso79.htm, Last accessed: June 8, 2018.
- International Monetary Fund, (2009b). Special Drawing Rights: General and Special SDR Allocations. https://www.imf.org/external/np/tre/sdr/proposal\\/2009/0709.htm, Last accessed: January 2, 2018.
- International Monetary Fund, (2016). Fiscal Monitor, Debt: Use it Wisely. https://www.imf.org/en/Publications/FM/Issues/2016/12/31/Debt-Use-it-Wisely, Last accessed: June 7, 2018.
- International Monetary Fund, (2018a). Factsheet: Special Drawing Rights. https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR, Last accessed: June 6, 2018.
- International Monetary Fund, (2018b). Factsheet: IMF Quotas. http://www.imf.org/en/About/Factsheets/Sheets/2016/07/14/12/21/IMF-Quotas, Last accessed: June 8, 2018.
- Marshall A., (1890), Principles of Economics, London: Macmillan and Co. 8th ed. 1920, pp. 18–488.Google Scholar
- McKibbin W. J., (2016), Brookings institute, Unreal interest rates will not create real demand, https://www.brookings.edu/opinions/unreal-interest-rates-will-not-create-real-demand/, Last accessed: June 6, 2018.
- Menger, C. (1891). Principles of Economics, 1871 (pp. 145–148). New York: New York University Press https://mises.org/sites/default/files/Principles%20of%20Economics_5.pdf, Last accessed: Sept 29, 2018.Google Scholar
- Officialdata.org, (2018), https://www.officialdata.org/1974-dollars-in-2018, Last accessed: June 8, 2017.
- Paulsen E. Congressman, (2016), The Looming Debt Crisis: An International Perspective, United States Congress, Joint Economic Committee, p. 1, https://www.jec.senate.gov/public/index.cfm/republicans/2016/12/the-looming-debt-crisis-an-international-perspective, Last accessed: June 7, 2018.
- Reifschneider, D., (2016), Gauging the ability of the FOMC to respond to future recessions, finance and economics discussion series 2016–06, Washington: Board of Govenors of the Federal Reserve System, p.17, https://doi.org/10.17016/FEDS.2016.068.
- Rothbard M.N., (2005), What has government done to our money and the case for a 100 percent gold Dollar, The Ludwig von Mises Institute, pp. 23–48, https://mises-media.s3.amazonaws.com/What%20Has%20Government%20Done%20to%20Our%20Money_3.pdf?file=1&type=document, Last accessed: Sept 29, 2018.
- Smith A., (1776), An inquiry into the nature and causes of the wealth of nations. Raleigh, N.C.: Alex Catalogue, pp. 1–754, https://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf, Last accessed: Sept 29, 2018.
- Statista, (2017). Gold reserves of largest gold holding countries worldwide as of the December 2018 (in metric tons). Available at: https://www.statista.com/statistics/267998/countries-with-the-largest-gold-reserves/, Last accessed: June 9, 2018.