Bypasses to the International Monetary Fund

Abstract

ABSTRACTCountries hold international financial reserves as a precaution against large and unexpected deteriorations in their balance of payments position. Although the International Monetary Fund was explicitly created to provide liquidity to member countries for just such purposes, other institutional arrangements at the regional and bilateral level have endured or emerged to provide similar services. They fall into three categories—monetary unions; regional financial arrangements; and swap lines between central banks. All three groups of institutions exhibit the key features of international Institutional bypasses. Issues around the twin notions of possible risks and potential benefits to the existing international order, flagged in the framework paper for this symposium, play out fully in the international finance arena, with important implications for the nature and quality of global governance. A formal hierarchy among the IMF and the bypasses, and a seamless global liquidity net have yet to be created.