The International Lender of Last Resort



The primary argument for an international lender of last resort is the historical record of the transmission of deflationary pressure from one country to another. This transmission has often been associated with changes in exchange rates, both with devaluations when currencies have been pegged and with depreciations when they have not been pegged. The devaluation of the Finnish markka in 1992 transmitted deflationary pressure to Sweden, one of its major competitors in the production and sale of timber and other products. The depreciation of the Thai baht, the Malaysian ringgit, and the South Korean won in the second half of 1997 transmitted a massive deflationary impulse to the United States. The increase in the Japanese trade surplus in the 1990s had a deflationary impact on its major trading partners and especially the US.


Central Bank International Monetary Fund Foreign Exchange Capital Flow Foreign Exchange Market 
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The International Lender of Last Resort

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© Palgrave Macmillan, a division of Macmillan Publishers Limited 2005

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