The US as 'Sovereign International Last-Resort Lender': The Fed's Currency Swap Programme during the Great Panic of 2007-09

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

Abstract

Beginning in late-2007 and culminating in autumn 2008, the US Federal Reserve took extraordinary action to address global dollar scarcity through the provision of dollar swap lines with a total of 14 foreign central banks. At their peak, these emergency credit lines provided nearly $600 billion in financing to economies starved of dollars. This case represents an archetypal example of 'sovereign international last-resort lending'. The article explores this case in order to engage the following two questions. First, what criteria qualify a state to play the role of international lender of last resort (ILOLR)? Second, under what conditions will a state with the capacity to act choose to do so? The article argues that the primary factor from which states derive the capacity to act as ILOLR is the international status of their national currency. Additionally, it contends that states with the capacity to act as ILOLR do so for defensive reasons. Examining the Fed's swap programme, three spillover effects are identified that threatened the US economy and motivated the US central bank to engage in defensive international last-resort lending during the crisis: financial system exposure, interest rate concerns, and a dramatic appreciation in the dollar's exchange rate.

Original languageEnglish (US)
Pages (from-to)157-178
Number of pages22
JournalNew Political Economy
Volume17
Issue number2
DOIs
StatePublished - Apr 1 2012
Externally publishedYes

Keywords

  • Federal Reserve
  • central banking
  • currency
  • financial crises
  • hegemony
  • international lender of last resort

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Political Science and International Relations

Fingerprint Dive into the research topics of 'The US as 'Sovereign International Last-Resort Lender': The Fed's Currency Swap Programme during the Great Panic of 2007-09'. Together they form a unique fingerprint.

Cite this