The Research On The Moral Hazard Of The Federal Reserve Currency Swap

In the subprime mortgage crisis,the Fed exchange swap instead of the IMF played the role of the International Lender of Last Resort(ILLR)and attracted much attention of the academic community.However,few studies have been conducted on the moral hazard caused by the Fed exchange swap.Moral hazard is one of the most important costs to fulfill the ILLR function.If we do not conduct in-depth research to find out the corresponding countermeasures,it is likely to lay the foundation for the next financial crisis.Which will result in incalculable consequences for the global economy.From the background of the subprime crisis in which the Fed act as a new ILLR by offering exchange swap,this article first briefly describes the development status and new features of the Fed currency swap.Then it analyzes the current state of moral hazard from the perspective of international capital flows and changes in foreign exchange reserves,and explores the causes of moral hazard from the aspects of selectivity and design flaws of the Fed's currency swap.Based on the previous work,using the event research method,this article selects the country's overall bond spread index to empirically test the investor's moral hazard triggered by the Fed currency swap.The results show that when the Fed establishes currency swaps with other countries in the crisis,it will choose the swap countries based on their own interests.This leads to the expectation that international investors will be rescued,thereby induce moral hazard.This article puts forward specific measures to suppress the moral risk of the Fed's currency swap,that is,to use a penalty rate for loans,allow investors to bear part of the crisis losses,allow counterpart countries to provide sufficient collateral,and properly apply constructive fuzzy strategies.This article has put forward the policy recommendations to prevent the moral risk of China's central bank currency swap:we should set specific standards for the initiation preconditions,loan interest rates,and loan amounts to improve the content of the currency swaps.For those currency swap agreements that have already been signed and cannot be modified in the short term,it is necessary to make full use of constructive and fuzzy strategies in the specific rescues and make camera decisions to minimize moral hazard.