Centre for Development Economics
Department of Economics

Delhi School of Economics


Exorbitant Privilege or Ultimate Responsibility: Access to the International Lender of Last Resort


Devika Dutt
(University of Southern California in Los Angeles, California)  

Thursday, 10th February 2022 at 3:05 PM IST.


As the issuers of the global reserve currency, the U.S. dollar, the Federal Reserve and the U.S. Treasury are the de facto international lender of last resort (ILLR) institutions in the global economy. Access to emergency liquidity in the U.S. Dollar is the most effective aspect of the global financial safety net. However, only some countries have access to the international lenders of last resort. In this paper, we explore the selective provision of emergency lending provided by the Federal Reserve, in the form of Reciprocal Currency Arrangements or swap lines, and in the form of a short term loan from the U.S. Treasury’s Exchange Stabilization Fund. Furthermore, we investigate the economic and political factors in explaining the differential support provided by these lenders of last resort and the conditions under which this support is extended. We provide a historical account of the evolution of the role these ILLR institutions have played since 1962, and how the relationship between the Federal Reserve and the U.S. Treasury has changed in this regard. Thereafter, we estimate a panel logit model to assess the relative importance of several economic and political factors in explaining access to ILLR institutions between 1982 and 2018. We find that several political factors like capital account openness, trade and defense agreements with the United States, and party composition of the United States government play an important role in determining access to the ILLR institutions. We also confirm that the relative exposure of the assets of U.S. banks to an economy and an economy’s share in US exports also play an important role. Therefore, this paper shows that even though these ILLR institutions are the only ones that have the capacity to serve as the International Lender of Last Resort, the extension of ILLR support is exercised in a discretionary and politically strategic manner.

Please find the link to the meeting below:


Meeting ID: 957 9822 2988
Passcode: 617392



All are cordially invited.

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