FrankRep
03-23-2011, 09:43 AM
G20 Mulling Giving IMF Forex Swap Mandate For Central Banks (http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103221901dowjonesdjonline000 428&title=g20-mulling-giving-imf-forex-swap-mandate-for-central-banks)
NASDAQ
Mar 23, 2011
--G20 Mulling Giving IMF Forex Swap Mandate For Central Banks
--IMF would provide short-term foreign exchange swaps to central banks in developing nations as a way to handle financial shocks
--US Fed backs the idea, but wants to make sure the IMF sets tough standards
WASHINGTON -(Dow Jones)- The International Monetary Fund is working on a proposal to become a more significant lender of dollars, euros and other hard currencies during times of crisis, essentially sharing the role of global lender of last resort with the U.S. Federal Reserve.
Under the plan, which has been encouraged by the U.S. and other nations in the Group-of-20 nations, the IMF would provide short-term foreign exchange swaps to central banks in developing nations as a way to handle financial shocks that leave those nations short of hard currencies. That would reduce political pressure on central banks to provide swap lines to countries that could be controversial domestically, and could also help convince borrowers that they don't need to accumulate huge reserves of foreign currencies to protect themselves during times of trouble.
France, which chairs the Group of 20 nations this years, has made the IMF plan a priority. The U.S. Federal Reserve also backs the idea, but wants to make sure the IMF sets tough standards for the swap lines and provides them for emerging nations, not advanced economies, concerned about the amount of new resources the IMF would need to backstop rich nations.
The U.S. and Europe have been concerned that foreign exchange reserves can help countries like China manipulate their currencies to keep them undervalued. But it's far from clear that China and others would substantially reduce their reserves because they would then have to trust the IMF sufficiently to provide them with emergency cash.
During the 2008 financial crisis, a raft of rich and developing countries including Brazil, South Korea and Mexico borrowed dollars from the Fed, with the currency swaps at the peak totally nearly $600 billion, more than 25% of the U.S. central bank's total assets.
The requests for swap lines put the Fed in a politically uncomfortable position of having to choose which U.S. allies were good enough credit risks. The U.S. didn't provide a swap line for Indonesia, for instance, despite that country's economic woes.
"In the future, the Fed may be unwilling or unable to step in," says Maurice Obstfeld, a University of California, Berkeley economics professor. Major political obstacles may prevent such an "ad hoc role" next time, he says.
So now the IMF is crafting what it calls the short-term liquidity credit line as part of a G-20 effort to strengthen the world's capacity to prevent and respond to economic shocks. In recent years, the IMF has already approved several new lending programs to provide extra money to governments in a cash crunch.
...
Full Story:
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103221901dowjonesdjonline000 428&title=g20-mulling-giving-imf-forex-swap-mandate-for-central-banks
NASDAQ
Mar 23, 2011
--G20 Mulling Giving IMF Forex Swap Mandate For Central Banks
--IMF would provide short-term foreign exchange swaps to central banks in developing nations as a way to handle financial shocks
--US Fed backs the idea, but wants to make sure the IMF sets tough standards
WASHINGTON -(Dow Jones)- The International Monetary Fund is working on a proposal to become a more significant lender of dollars, euros and other hard currencies during times of crisis, essentially sharing the role of global lender of last resort with the U.S. Federal Reserve.
Under the plan, which has been encouraged by the U.S. and other nations in the Group-of-20 nations, the IMF would provide short-term foreign exchange swaps to central banks in developing nations as a way to handle financial shocks that leave those nations short of hard currencies. That would reduce political pressure on central banks to provide swap lines to countries that could be controversial domestically, and could also help convince borrowers that they don't need to accumulate huge reserves of foreign currencies to protect themselves during times of trouble.
France, which chairs the Group of 20 nations this years, has made the IMF plan a priority. The U.S. Federal Reserve also backs the idea, but wants to make sure the IMF sets tough standards for the swap lines and provides them for emerging nations, not advanced economies, concerned about the amount of new resources the IMF would need to backstop rich nations.
The U.S. and Europe have been concerned that foreign exchange reserves can help countries like China manipulate their currencies to keep them undervalued. But it's far from clear that China and others would substantially reduce their reserves because they would then have to trust the IMF sufficiently to provide them with emergency cash.
During the 2008 financial crisis, a raft of rich and developing countries including Brazil, South Korea and Mexico borrowed dollars from the Fed, with the currency swaps at the peak totally nearly $600 billion, more than 25% of the U.S. central bank's total assets.
The requests for swap lines put the Fed in a politically uncomfortable position of having to choose which U.S. allies were good enough credit risks. The U.S. didn't provide a swap line for Indonesia, for instance, despite that country's economic woes.
"In the future, the Fed may be unwilling or unable to step in," says Maurice Obstfeld, a University of California, Berkeley economics professor. Major political obstacles may prevent such an "ad hoc role" next time, he says.
So now the IMF is crafting what it calls the short-term liquidity credit line as part of a G-20 effort to strengthen the world's capacity to prevent and respond to economic shocks. In recent years, the IMF has already approved several new lending programs to provide extra money to governments in a cash crunch.
...
Full Story:
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103221901dowjonesdjonline000 428&title=g20-mulling-giving-imf-forex-swap-mandate-for-central-banks