Managing Systemic Liquidity Risk in Financially Dollarized Economies
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Summary:
This paper evaluates ways to protect highly dollarized banking systems from systemic liquidity runs (such as the ones that took place recently in Argentina, Uruguay, and Paraguay). In view of the limitations of available (private or official) insurance schemes, and the distortions introduced by central bank lending of last resort (LOLR), the authors favor decentralized liquid foreign asset requirements on dollar deposits, supplemented by a scheme of "circuit breakers." The latter combines the use of limited dollar liquidity to ensure the convertibility of transactional deposits with a mechanism that automatically limits the convertibility of dollar term deposits once triggered by a predetermined decline in banks' liquidity.
Series:
Working Paper No. 2005/188
Subject:
Asset and liability management Banking Commercial banks Correspondent banking Financial crises Financial institutions Financial services Insurance Lender of last resort Liquidity
English
Publication Date:
September 1, 2005
ISBN/ISSN:
9781451862072/1018-5941
Stock No:
WPIEA2005188
Pages:
31
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