Working Paper: NBER ID: w12451
Authors: Barry Eichengreen
Abstract: The accumulation of international reserves by emerging markets raises the question of how to best utilize these funds. This paper explores two routes through which the pooling of reserves could enhance stability and welfare. First, the reserve pool could be used for emergency lending in response to sudden stops. Second, a portion of the reserve pool along with borrowed funds could be used to purchase contingent debt securities issued by governments and corporations, helping to solve the first-mover problem that limits the liquidity of markets in these instruments and hinders their acceptance by private investors. This paper argues that the second option is more likely to be feasible and productive.
Keywords: No keywords provided
JEL Codes: F0; F02; F39
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Availability of pooled reserves (Q21) | Reduced severity of economic downturns during sudden stops (F65) |
| Pooling reserves (Q25) | Improved market liquidity (G19) |
| Improved market liquidity (G19) | Reduced risk of financial crises (F65) |