Lender of Last Resort

By Isaac Cohen*

Last week were released the transcripts of the meetings held six years ago, within the central bank of the United States, at the height of the financial collapse that led to the Great Recession of 2008. In all, 1,685 pages of transcripts were released, providing the most plentiful source of information about the decisions adopted to prevent, we know now, the fall of the world economy into a Great Depression.

Since the collapse originated in the burst of the housing bubble in the United States, most of the transcripts describe decisions adopted to deal with the domestic emergency. However, the New York Times found in the transcripts some decisions adopted to deal with the international dimensions of the crisis.

Most of these international measures consisted in the provision of liquidity in US dollars to different central banks, in exchange for national currencies, using a mechanism known as currency swaps.

In normal circumstances, this mechanism provides liquidity among the central banks of advanced economies. In the emergency, the currency swaps were agreed, among others, with the central banks of the European Union, the United Kingdom, Sweden and Switzerland. Additionally and extraordinarily, swap credits were also arranged with some central banks of emerging market economies, such as Brazil, Mexico, Singapore and South Korea.

By December 2008, the total amount of swap credits to central banks was $580 billion, never reached before and far more than the rescue of domestic financial institutions.

*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC Washington Office. 

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