The Borrower of Last Resort:
International Adjustment and Liquidity in Historical Perspective*
According to the author Ramaa Vasudevan the article was aiming to compare and contrast the actual workings of the international l monetary arrangements in the two periods, Britain during the period of the international gold standard and USA after post war period. The pyramiding if official liabilities on a disproportionately small reserve base and the parallel emergence of unregulated monetary mechanisms based on an explosion of private liabilities generated international liquidity in both periods. It also adds to explain the workings of the international monetary systems of the two periods which seeks to highlight the role of a “borrower of the last resort” in the mechanism of adjustment and liquidity in the international monetary system.
The first period was during the last two decades of the nineteenth century when “international gold standard” emerged, when most countries shifted from silver and bimetallic standards to a gold standard. It was during this period that the British domination of the international financial system can be seen. The stability of the monetary system during this period was credited to the management of the Bank of England. The bank was able to calibrate the international movements of gold, on the basis of relatively small gold reserves through manipulation of the bank rates.
According to the article the ability of the Bank of England to manage the system was absolute. The techniques it employed were for money control was rudimentary and marked up by frequent changes in the bank rates. But the role of the Bank of England was not only exclusive for the calibration of discount rates but rather on the deployment of variety of means to make the discount rate effective in the chaos of unregulated short term flows that constituted the money market. During the regime of the British bank the...