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on foreign capital inflows is at risk. This includes, of course, the United States,
although America is not a client of the Fund, since it can effectively print international
reserves (the dollar remaining the dominant reserve currency). But in
many smaller countries with even larger current account deficits relative to the
size of their economies, corporate borrowing, home mortgages, and even auto
loans are denominated in foreign currency. For them, flooding the markets with
liquidity and letting the currency depreciate, as the US does, is no solution.
Indeed, it will only make matters worse.
110 The First Global Financial Crisis of the 21st Century Part II
Helping countries in this pickle has long been the IMF’s bread and butter. But
even here it is not clear that the crisis will allow the Fund to reassert its relevance.
Eastern Europe crisis countries may be bailed out by the EU and the ECB, while
their East Asian counterparts may receive swaps and credits through the Chiang
Mai Initiative. Once again the Fund may end up being sidelined unless it demonstrates
that it has a better idea, in this case about how to link emergency lending
with policy adjustment. is sometimes said that the crisis is a reminder of why we have the IMF. If the
Fund doesn’t come up with some new ideas for how to handle it, the crisis may
only remind us why we can forget it.
Editors’ note: This column first appeared on
Can the IMF save the world? 111

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