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Will China Be the Lender of Last Resort

  • Date Submitted: 12/10/2015 04:34 PM
  • Flesch-Kincaid Score: 51.3 
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Will China be the lender of last resort to countries in crisis?
Reading Review
In the article “On the Need for an International Lender of Last Resort” by Stanley Fischer, Fisher argues that the role of the lender of last resort is to help mitigate and prevent financial crises due to a lack of liquidity. Moral hazard problem can be raised. International Monetary Fund (IMF) could be and should be the lender of last resort.   In Drezner’s article “The System Worked: Global Economic Governance during the Great Recession”, he acknowledges the limitations and flaws of global economic institutions but thinks the system works better than is commonly thought. In the article “ The World in Depression, 1929-1939”, Kindleberger provides a potential explanation for the Great Depression. He points out that in 1929, neither the UK nor the US stabilized the international economy. The UK did not because they lacked the ability to while the US was able but unwilling. In the article “The Politics of Rescuing the World's Financial System: The Federal Reserve as a Global Lender of Last Resort” by Broz , in 2008, the central bank of the US added liquidity to some countries as a lender of last resort, but they were more likely to lend to countries that aligned with their interests. It is a problem because some countries that really needed help were excluded.

Background
China lent $80 billion to Latin America and $53 billion to Africa between 2004 and 2011. Venezuela received 16 loans from China equaling $56 billion since 2005. Ukraine, Sri Lanka and Myanmar also received large amount of infrastructural financing. China also gave Brazilian oil giant, Petrobras, a $3.5 billion loan and helped Pakistan with $60 billion in massive infrastructures projects. China also initiated the Asian Infrastructure Investment Bank (AIIB), which is a proposed international financial institution focused on financing construction projects in the Asian-Pacific region. The institution is currently...

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