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A currency liability has arisen because the Swiss franc has risen strongly against the pound.
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South Korea is, for example, considering imposing a levy on banks' foreign currency liabilities.
However, an increase in foreign currency liabilities could imply a currency mismatch for Swiss banks.
Countries with large current account deficit and/or large fiscal deficits and with large short term foreign currency liabilities and borrowings have been the most fragile.
Unexpected devaluations left banks and companies with short-term foreign-currency liabilities they could not support.
This makes them more like capital controls since most foreign-currency liabilities are likely to be owed to foreigners.
Pension reform has led to the creation of funds that are flush with cash and need assets to match their long-term, local-currency liabilities.
And if borrowers sought to get around this by acquiring new contingent foreign-currency liabilities, these would themselves be subject to the UDROP requirement.Doubtless the idea raises a host of other questions (including some not addressed in the paper).
That means uncertainty and delay at times of distress, the opposite of what an effective crisis-prevention regime demands.It is especially disappointing that nothing has been decided about what rules to recommend to, or require of, emerging-market economies when it comes to controlling their foreign-currency liabilities.
Because, for one, Iceland has its own currency and the magnitude of its banking system's foreign-currency liabilities.
Why not also make all short-term deposits, which function much like currency, the explicit liability of the government?
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CEO of Professional Science Editing for Scientists @ prosciediting.com