ch18international banking reserves, debt and risk(国际经济学浙江林学院,岑丽娟)

1、International EconomicsBy Robert J. Carbaugh8th EditionChapter 18:International Banking: Reserves, Debt and RiskInternational reservesNature of international reservesReserves of foreign currency and other suitable assets are used to finance payments imbalancesReserves allow a nation to take more tim

2、e to correct BOP disequilibrium (but may also delay needed action)Demand for reserves depends on the monetary value of international transactions and the size of payments imbalances2International reservesDemand for international reservesMain factor in demand for reserves is the nature of the adjustm

3、ent mechanisms to correct BOP imbalancesExchange rate flexibility is a crucial element of the adjustment processKey use for reserves is to intervene in currency markets to defend an exchange rateThe more a nation is willing to let its currency float, the less it will need sizable reserves3Internatio

4、nal reservesDemand for international reservesOther factors affecting demand for reserves:Automatic adjustment mechanisms that respond to payments imbalancesEconomic policies used to correct payments imbalancesInternational coordination of economic policiesLevel of world prices and income4Demand for

5、reserves and exchange rate flexibilityExchange rate (dollars per pound)EInternational reservesD0S2D1S1S05International reservesSupply of international reservesInternational reserves may be owned by nations or may be borrowed if reserves on hand prove insufficientOwned reserves:Reserve currencies (US

6、 dollar, German mark, etc,)Gold - once central, now rarely usedSpecial drawing rightsBorrowed reserves can come from the IMF and other official arrangements, or can be borrowed from major commercial banks6International reservesGold as a reserve assetGold was originally used as currency, but it began

7、 to be replaced by paper money and bank depositsPost-World War I inflation prompted many nations to return to a gold standard, where all currency in circulation was backed by goldGold standard collapsed during the Great Depression, to be replaced by a gold exchange standard after World War II7Intern

8、ational reservesGold as a reserve asset (contd)The US dollar was set to be convertible to gold at a fixed rate, and the dollar became a key reserve assetStresses from persistent US payments deficits brought an end to the gold exchange standard by 1973, and in 1975 gold was removed as an internationa

9、l reserve asset8International reservesSpecial Drawing Rights (SDRs)Because a gold standard limits the amount of currency available to the supplies of gold on hand, the IMF created the SDR to increase international liquiditySDRs represent rights to draw foreign currencies from the IMF to use for sett

10、lement purposes; they are allocated to IMF members proportionallySDRs are pegged to a basket of key international currencies, and are useful because they are not tied to any one currency9International reservesFacilities for borrowing reservesIMF drawings - members may purchase foreign currency with

11、their own currency, with limits and sometimes conditionsGeneral Arrangements to Borrow - major industrial nations agreed to make further reserves available to the IMF if neededS - major industrial nations agree to s with each other; can be done more quickly and less visibly than Fund drawings10Inter

12、national reservesFacilities for borrowing reserves (contd)Special financing facilities - to compensate mostly developing countries which face hardships which are transient or beyond their control: Compensatory Financing Facility, Oil Facility, Buffer Stock FacilityCommercial bank lending11Internatio

13、nal lendingInternational lending riskCredit risk - potential for financial defaultCountry risk - whether government policies will help or hinder the servicing of the loanCurrency risk - whether devaluations or exchange controls will interfere with the repayment of the loan12International lendingInte

14、rnational debt problemsMany developing nations borrowed heavily on easier terms in the 1970s because major banks were flush with deposits from oil producing statesIn the 1980s, rising interest rates caused payments on the variable rate international loans to increase, and the ability of many of thes

15、e major debtor nations to service their loans came into question13International lendingInternational debt problems (contd)Most loans were denominated in dollars, meaning that these nations had to run current account surpluses to earn foreign exchange with which to make loan payments - just as the in

16、dustrial nations went into a recessionMeasures used to gauge debt burden: debt-to-export ratio; debt service/export ratio14International lendingOptions for debt-service problemsNations can stop making payments - but there are severe consequencesService debt at any cost - but may be politically impos

17、sibleReschedule the debt - stretch out repayment schedule (but pay more overall)Obtain emergency loans from the IMF - but conditionality may be hard to stomach15International lendingReducing bank exposure to developing-country debtLoan sales in secondary marketDebt buybacks or debt-for-debt swapsDebt-for-equity swapsDebt forgiveness16International lendingEurocurrency marketsDeposits in dollars and other major currencies in banks outsid