Tuesday, June 14, 2011

Is the Federal Reserve the International Lender of Last Resort

First, there is a policy statement advocating this from 1999:
An International Lender of Last Resort,The IMF, and the Federal Reserve
Summary: "Under existing institutional arrangements, the IMF cannot serve as a genuine LOLR. Specifically, the IMF cannot create reserves, cannot make quick decisions, and does not act in a transparent manner in order to qualify as an authentic international LOLR. The Federal Reserve, however, does meet the essential requirements of an international LOLR. It can quickly create international reserves and money, although it has not openly embraced international LOLR responsibilities."

Second, there is evidence that the Fed did in fact act this way during the 2008 financial crisis:
Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went
"Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank." Dexia borrowed $31.5 billion from the Fed on 10/24/2008, which, it should be noted, has all been paid back.

So the truth is that the Fed is the international LOLR, and the dollar is the world's currency.

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