Copyright Page
© 2023 International Monetary Fund
WP/23/38
IMF Working Paper
Asia Pacific Department
Guaranteeing Trade in a Severe Crisis: Cash Collateral over Bank Guarantees
Prepared by Antonis Kotidis, Margaux MacDonald and Dimitris Malliaropulos*
Authorized for distribution by Nada Choureiri
February 2023
IMF Working Papers 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.
ABSTRACT: Banks guarantee international trade through letters of credit. This paper analyzes what happens to trade when the critical role of banks as trade guarantors is compromised. Using the case of the Greek capital controls in 2015, the events around which led to a massive loss of confidence in the domestic banking system, we show that firms whose operations were more dependent on domestic banks suffered a steep decline in imports and, subsequently, exports. This operated through letters of credit, which during the capital controls period had to be backed by firms’ own cash collateral rather than the bank guarantee. As a result, cash-poor firms imported relatively less. Public intervention to guarantee transactions is shown to help mitigate some of the decline in imports.
| JEL Classification Numbers: | F14; F23; F34; G21 |
| Keywords: | Bank guarantee; letters of credit; imports; exports; capital control |
| Author’s E-Mail Address: | Antonis.kotidis@frb.gov; mmacdonald@imf.org; dmalliaropulos@bankofgreece.gr |
| JEL Classification Numbers: | F14; F23; F34; G21 |
| Keywords: | Bank guarantee; letters of credit; imports; exports; capital control |
| Author’s E-Mail Address: | Antonis.kotidis@frb.gov; mmacdonald@imf.org; dmalliaropulos@bankofgreece.gr |
Title Page
WORKING PAPERS
Guaranteeing Trade in a Severe Crisis: Cash Collateral over Bank Guarantees
Prepared by Antonis Kotidis, Margaux MacDonald and Dimitris Malliaropulos
The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Federal Reserve System or its Board of Governors, the International Monetary Fund, its Executive Board, or IMF management, the Bank of Greece or the Eurosystem.