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On the Bailout of Currencies

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  • Stephan Unger

    (Department of Economics & Business Saint Anselm College)

Abstract

Special Drawing Rights are reserve assets which ought to provide liquidity in times of a country’s financial distress. It is a potential claim on freely usable currencies of International Monetary Fund member countries. This article examines the possible effects of a global Special Drawing Rights implementation by the International Monetary Fund in case of a collapse of one of the major currencies. The question addressed is if a distressed fiat currency can be bailed out effectively by triggering the designation mechanism to the International Monetary Fund member countries The results indicate that the liquidity benefit per created Special Drawing Rights unit would proportionally increase with the rate of money supply.

Suggested Citation

  • Stephan Unger, 2019. "On the Bailout of Currencies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 25(1), pages 79-89, February.
    • Handle: RePEc:kap:iaecre:v:25:y:2019:i:1:d:10.1007_s11294-019-09719-6
    DOI: 10.1007/s11294-019-09719-6
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