AN ALTERNATIVE ILLR: CENTRAL BANK CURRENCY SWAPS
The creation of the GAB helped address the IMF’s problem of resource insufficiency by increasing its access to foreign currencies. Yet, even as the new arrangement alleviated one problem, it intensified another: the problem of unresponsiveness. For the United States, acquiring the resources it might need was now more difficult and more costly than ever. A prospective drawing from the GAB was a relatively risky proposition, both economically and politically. First, in the event of a speculative move against the dollar, the IMF could not disburse GAB funds on demand. Accessing credit via the new mechanism had considerable red tape. Deliberation among the creditor economies that controlled access to the funds could take weeks or months. In the meantime, the very threat that a drawing was aimed at mitigating may have already done its damage. Second, there was the issue of conditionality. Early in the IMF’s existence when it was thought the United States would not need to borrow from the Fund, the United States pushed for the adoption of conditionality. Now, the European countries—which had initially opposed the IMF’s use of conditionality—flexed their newfound muscle by making GAB drawings drain “represents a warning about the trend of costs and prices in that country” (1959b). US policymakers were aware of the European’s position as well. In a 1960 Federal Reserve meeting, one board member noted that US allies were fearful that the United States would not take “adequate measures” to correct the balance of payments crisis and would “succumb to excessive monetary ease and fiscal laxity” (FOMC 1960, p. 15).
dependent on a domestic adjustment program they would design. What the US policymakers really needed and wanted was an ILLR that could act quickly and independently in the event of a crisis: a system that would give the United States access to countercyclical, on-demand financing free of conditions. As it happened, just such a system was being developed, even as the GAB negotiations were under way. The solution to US concerns about the IMF’s inadequacies as an ILLR was a new kind of liquidity arrangement.