Money, Banks and Finance in Economic Thought

Charles Kindleberger in Retrospect: International Finance and Federal Reserve's Dollar Swap Lines

Carré Emmanuel, South Brittany University
Laurent Le Maux, Brest University and Paris Saint-Denis University

The phrase international lender of last resort was coined by Hawtrey (1932) in the context of gold-exchange standard and that of global lender of last resort have recently been used in the literature in order to define the action of the Federal Reserve in the context of the financial globalization (Obstfeld, 2009; Walker, 2010; Mehrling, 2016). In 2007-2009, the Federal Reserve directly provided liquidity to international commercial banks through credit facility programs and also indirectly by implementing dollar swap lines to foreign central banks and especially the European Central Bank. In his times, Kindleberger (1973, 1978, 1981, 1983, 1986) examined on several occasions the issue of the international lender of last resort. Interestingly, he pointed out that the relevant institutional design for the international lending in last resort was precisely the currency swap lines between the “leadership” and other countries. In retrospect, Kindleberger’s view appears more realistic or relevant than the interpretation describing the dollar swap lines implemented during the global financial crisis as a reciprocal assistance framework, a horizontal safety network. In addition, whereas the literature on the international political economy has often associated Kindleberger’s contribution with the hegemonic stability theory, Kindleberger adopted a more subtle view and emphasized the hierarchy of money in an international context.

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Keywords: Kindelberger, International lender in last resort, dollar swap lines