IMF would provide short-term foreign exchange swaps to central banks in developing nations as a way to handle financial shocks
US Fed backs the idea, but wants to make sure the IMF sets tough standards
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(Dow Jones)- The International Monetary Fund is working on a proposal to become a more significant lender of dollars, euros and other hard currencies during times of crisis, essentially sharing the role of global lender of last resort with the U.S. Federal Reserve.
Under the plan, which has been encouraged by the U.S. and other nations in the Group-of-20 nations, the IMF would provide short-term foreign exchange swaps to central banks in developing nations as a way to handle financial shocks that leave those nations short of hard currencies. That would reduce political pressure on central banks to provide swap lines to countries that could be controversial domestically, and could also help convince borrowers that they don’t need to accumulate huge reserves of foreign currencies to protect themselves during times of trouble.