Beatrice Scheubel, Livio Stracca, Cédric Tille, 26 April 2019

More than ten years on from the start of the Global Crisis, policymakers are discussing the effectiveness of the global financial safety net – the combination of reserves, central bank swap lines, regional financial arrangements, and the IMF. This column evaluates the effectiveness of the use of IMF support and foreign reserves in globally driven crises. It finds that actual use of IMF support helps during currency crises – the type of crisis for which the support was originally designed. Use of reserves is of limited effectiveness and only during sudden stops. 

Kris Mitchener, Gary Richardson, 28 May 2016

The Global Crisis emphasised the fragility of international financial networks. Despite this, there has been little historical research into how networks propagate financial shocks. This column explores how interbank networks transmitted liquidity shocks through the US banking system during the Great Depression. During banking panics, the pyramided-structure of reserves forced troubled banks to reduce lending, thus amplifying the decline in investment spending. 

Alex Cukierman, 16 April 2016

Both the US and the Eurozone reacted to the Global Crisis by injecting liquidity and loosening monetary policy. This column argues that despite the similarities in the behaviour of bank credit, the behaviour of bank reserves has been quite different. In particular, while US bank reserves have been on an uninterrupted upward trend since Lehman’s collapse, EZ bank reserves have fluctuated markedly in both directions. At the source, this is due to differences in the liquidity injections procedures between the Eurozone and the Fed.

Manmohan Singh, Peter Stella, 07 May 2012

Are central banks printing vast quantities of money? This column explains how money-multiplier economics (central banks create reserves that allow commercial banks to create money) no longer holds. Today, non-bank financial institutions play a pivotal role in money/liquidity creation, but hold no reserves. Their lending depends on “private reserves”, mainly highly liquid government securities. Creating more ‘public’ reserves by buying such ‘private’ reserves doesn’t trigger money creation – it just substitutes among reserve types. Open-market purchases only create money if they swap a monetary base for assets that are no longer accepted at full value as collateral in the market.

Joshua Aizenman, Kenta Inoue, 19 March 2012

The patterns of gold holding remain a debatable topic at times when the relative price of gold has appreciated while the global economy has experienced recessionary effects. This column studies the curious patterns of gold holding and trading by central banks from 1979 to 2010. It suggests that a central bank’s gold position signals economic might, and gold retains the stature of a ‘safe haven’ asset at times of global turbulence.

Kati Suominen, 09 July 2010

The global crisis has led some to question the dollar’s place as the dominant currency. This column discusses three camps in the literature: those advocating a new synthetic global currency, those arguing that a new reserve currency will emerge, and those suggesting a return to sharing the role. It concludes that talk of the dollar’s death – or even its decline – are exaggerated.

Jeffrey Frankel, George Saravelos, 01 July 2010

Can “early warning indicators” predict which countries are most vulnerable to a crisis? This column argues that, contrary to findings released last year, early warning indicators were useful in identifying which nations were hit hardest by the Global Crisis from 2008 to 2009. The authors argue that the level of central bank reserves was particularly useful. Other useful early warning indicators include real effective exchange rate overvaluation, current accounts, and national savings.

Eduardo Borensztein, Olivier Jeanne, Damiano Sandri, 15 December 2009

Accumulating large foreign exchange reserves is a costly insurance strategy for developing countries. This column says that commodity-exporting countries might do better by hedging their risk with financial instruments, thereby reducing the need to hold precautionary reserves. Yet few do so.

Joshua Aizenman, 30 November 2009

The spectacular increase in hoarding of international reserves by emerging markets since the East Asian crisis has been one of the defining features of global imbalances. This column explores lessons from the crisis regarding alternatives to massive hoarding. It says that the crisis validates the need for external debt management policy and that the presence of fire-sale externalities associated with deleveraging, optimal external borrowing-tax cum international reserves hoarding-subsidy reduces the cost and the scale of hoarding international reserves.

Joshua Aizenman, Sun Yi, 15 October 2009

Emerging markets accumulated massive international reserves over the last decade. This column explores how they used them to respond to the crisis. Economies that accumulated reserves for trade concerns drew them down in response to the shock, while economies driven by financial factors showed a “fear of depleting”.

Guillermo Calvo, Rudy Loo-Kung, 10 December 2008

Emerging markets are weaker than the G7, and if they undertake expansionary monetary and fiscal policies like the G7, inflation and capital flight are likely surge. This column argues international financial institutions must take an unprecedented role in bailing out emerging markets as there is the serious risk that they resort to protectionism and nationalisation.

Victor Pontines, Ramkishen Rajan, 19 November 2008

Why are emerging Asian economies accumulating massive foreign exchange reserve stocks? Much research has focused on precautionary or export-promoting motives. This column argues that emerging economies are pursuing exchange rate management with a strong bias towards preventing appreciation.

Michael Bordo, Harold James, 18 June 2008

The IMF needs a new job. This column makes the case for the bold proposal that the IMF should manage a significant part of the new surplus countries’ sovereign wealth funds.


CEPR Policy Research