In the end-game of a fixed exchange rate regime, increases in interest rates to defend the currency may lead to an apparently perverse market response: further downward pressure on the exchange rate. This may result if a large proportion of investors` foreign exchange exposure is dynamically...

Evidence from the past three years indicates that the exchange rate between the private ECU and the official ECU Basket can deviate substantially from par. The value of the private ECU is driven by expectations that a future European Central Bank will enforce par convertibility between the...

This paper reviews the ongoing efforts to reduce the risks inherent in the world`s principal wholesale payment systems. The paper assesses the major policy proposals to contain the growth in intraday credit exposures that arises in net settlement wholesale payment systems and in the real-time...

We identify incentives generated by the Bretton Woods II system that may have contributed to the sub-prime liquidity crisis now working its way through the international monetary system. We then evaluate the persistent conjecture that the liquidity crisis is or will become a balance of payments...

In this essay, we argue that key assumptions in international macroeconomic theory, though useful for understanding the economic relationships among developed countries, have been pushed beyond their competence to include relationships between developed economies and emerging markets. The...

Today's value of the private ECU is driven by expectations that a European monetary authority will at some future date declare itself willing to convert the private ECU into the official basket at par. Until then, its value is not limited by any existing institutional arrangements in the...

In this paper, we extend the bank run literature to an open economy model. We show that a foreign banking system, by raising deposit rates in the presence of a domestic banking panic, may generate sufficient liquid resources to acquire assets sold by the domestic banking system at bargain...

Banks are unique among financial institutions because they are the cheapest source of liquidity in the economy. Banks choose to hold reserves to facilitate settlement of end-of-day net due to positions arising from payments operations. Money market substitutes for bank liabilities do not escape...

This paper will discuss the role of derivative products in international capital flows, especially in providing a means of both reducing and enhancing market risks associated with given net flows. It will emphasize how derivatives can be used to evade risk-control or prudential regulation,...

When Stage III of EMU begins on January 1, 1999, member countries will irrevocably lock exchange rates, and interbank payments in euros will commence. Will the ensuing respite from Stage II instabilities be permanent or only the eye of the storm? Can Stage III itself be subject to an attack that...