Council on Foreign Relations Global Economics Monthly
Issue 5 | October 2013

Global Economics Monthly

Cash or Credit?

Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics

Should the International Monetary Fund (IMF) and major central banks provide credit lines to countries facing sharp outflows of capital? In 2007, 2010, and 2011, the Federal Reserve's dollar-swap lines with other central banks played a critical role in stabilizing markets and ensuring an adequate supply of dollar liquidity. Now, in the context of sudden reversals of capital flows ("sudden stops"), there are proposals for new swap or credit arrangements for emerging markets and for the periphery of Europe. These proposals have their virtues, though perhaps not the ones their proponents claim.

Swap Lines, the Fed, and the IMF

The idea that the International Monetary Fund (IMF) should coordinate a global network of swap lines gained currency during the financial crisis, partly in response to complaints from countries excluded from the Fed's swap lines. The Fed's prudential concerns, along with a mandate to limit swaps to countries viewed as threatening global financial stability, highlighted gaps in the global safety net. In addition, the Fed's swap lines were temporary. The primary argument for a new arrangement rests on the observation that in today's financial markets—highly leveraged, complex, and interconnected—adequate liquidity is central to avoiding crisis. This suggests the need for something more comprehensive and permanent. Read more »

Looking Ahead: Kahn's take on the news on the horizon

The Cliff Is Dead, Long Live the Cliff

A U.S. government shutdown is in effect with no clear exit strategy. A far more material and potentially damaging standoff on the debt limit looms.

The World Bank and IMF Meet

Meetings later this week between the world's two major financial institutions will reveal anxiety about growth and capital flows, but offer little agreement on what to do about it.

Abenomics' Second Arrow

The issue is fiscal sustainability over the medium term, without killing growth now. The decision to go ahead with the consumption tax is good on structural grounds but has renewed growth fears.

From the Macro and Markets Blog

The Government Shutdown: How This Ends?

Robert Kahn

There is insufficient pressure on either side to make a deal. As with the failed 2011-2012 "super committee," the conference committee charged with agreeing on funding for the remainder of the fiscal year would face the challenge of choosing the appropriate "sticks" to provide the correct incentives for both sides to agree on. Read more »

Fiscal Fiasco—This Time Is Different?

Robert Kahn

The government shutdown is a preclude to the debt-limit debate that will go on later this month. Despite limited market reactions to the shutdown, any failure by the government to pay on its obligations would be deeply unsettling. Read more »

The Fed: No Taper and Little Clarity

Robert Kahn

The Fed announcement of no taper suggests a significant divergence of view about the prospects for recovery and the outlook for interest rates. Here are my thoughts on Chairman Bernanke's comments at the FOMC conference. Read more »

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