Cover IMF Working Papers
The Eastern Caribbean Central Bank: Challenges to an Effective Lender of Last Resort
Author: Mr. Pablo F Druck and Mr. Mario Dehesa
Series:
IMF Working Papers
Volume/Issue:
Volume 2008: Issue 214
Language:
English
Publication Date:
01 Sep 2008
DOI:
https://doi.org/10.5089/9781451870725.001
ISBN:
9781451870725
ISSN:
1018-5941
Pages:
18
Keywords:
WP; liquidity assistance; central bank
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (188.4 KB) Download Epub
The paper analyzes the challenges for the Eastern Caribbean Central Bank (ECCB) to be an effective lender of last resort (LOLR) as part of a modern banking crisis resolution framework. The main results from the theoretical model of the ECCB's institutional arrangement are that the majority of currency union members may veto emergency lending in the case of a member-specific shock, as such lending may endanger the stability of the currency board (by lowering the central bank's international reserves, thus raising devaluation risk). However, in the presence of contagion across countries, all currency union members have a vested interest in liquidity supply from the central bank. A key policy recommendation is that currency union members need a stronger fiscal position to continue to access international financial markets and sustain the exchange rate peg.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund