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  5. Central Banks as Dollar Lenders of Last Resort: Implications for Regulation and Reserve Holdings

蝌蚪网 Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Central Banks as Dollar Lenders of Last Resort: Implications for Regulation and Reserve Holdings

  • Mitali Das
  • Gita Gopinath
  • Helene Hall
  • Taehoon Kim
  • Jeremy C. Stein
蝌蚪网 Journal: Macroeconomics (Forthcoming)

Abstract

We explore how foreign central banks behave when firms engage in currency mismatch, borrowing heavily in dollars. A central bank can deal with risky private-sector mismatch two ways: (i) with financial regulation; or (ii) by accumulating reserves to better serve as a dollar lender of last resort. We highlight a novel externality: individual central banks may over-accumulate dollar reserves, as this exacerbates a global scarcity of dollar-denominated assets, lowering dollar interest rates and encouraging firms to further increase their currency mismatch. Relative to the decentralized outcome, a global planner may prefer tighter financial regulation and reduced holdings of dollar reserves.

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