International Reserves and Swap Lines: Substitutes or Complements?

Can Fed swap lines reduce the need for other countries to accumulate dollar reserves as insurance against a crisis? Includes an interesting case study of Korea’s experience during the 2008 GFC when, despite strong fundamentals and the world’s 6th largest holding of dollar reserves, its currency’s collapse vs. the US dollar was only halted by the announcement of a Fed swap line. Chapter 12 of the Rise of Carry discusses the central role swap lines play in supporting the carry regime. There is a large literature on swap lines but this is a good starting point for those looking to learn how they work in practice.

Aizeman, J. and Jinjarak, Y. and Park, D. National Bureau of Economic Research Working Paper 15804.  March 2010.  

View paper:


Available Now