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Financial intermediation and fragility: the role of the periphery

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  • Ramaa Vasudevan

Abstract

A peculiar feature of the present international economy is that the leading 'hegemonic' country, USA, has a large and mounting external deficit which it finances by issuing debt in its own currency. The US can be seen to be at the apex of a pattern of triangular payments recycling the surpluses of creditor countries to debtor countries in the periphery. The paper shows, within a stock-flow-consistent framework, how capital flight from debtor periphery countries, by precipitating a shift from assets denominated in domestic currency to those denominated in dollars, acts like a safety valve for the international monetary system.

Suggested Citation

  • Ramaa Vasudevan, 2010. "Financial intermediation and fragility: the role of the periphery," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 57-74.
    • Handle: RePEc:taf:irapec:v:24:y:2010:i:1:p:57-74
    DOI: 10.1080/02692170903424281
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    References listed on IDEAS

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    1. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66, National Bureau of Economic Research, Inc.
    2. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, April.
    3. Charles P. Kindleberger, 2000. "Comparative Political Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112469, December.
    4. Janine Berg & Lance Taylor, 2000. "External Liberalization, Economic Performance, and Social Policy," SCEPA working paper series. 2000-02, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
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    Cited by:

    1. Tarron Khemraj, 2014. "Money, Banking and the Foreign Exchange Market in Emerging Economies," Books, Edward Elgar Publishing, number 15473, March.
    2. Michael A. Goldstein & Joseph McCarthy & Alexei G. Orlov, 2019. "The Core, Periphery, and Beyond: Stock Market Comovements among EU and Non‐EU Countries," The Financial Review, Eastern Finance Association, vol. 54(1), pages 5-56, February.

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