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UDROP: a contribution to the new international financial architecture

Buiter, Willem H. and Sibert, Anne C. (1999) UDROP: a contribution to the new international financial architecture. International Finance, 2 (2). pp. 227-247. ISSN 1367-0271

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Abstract

We propose a Universal Debt Rollover Option with a Penalty (UDROP) to prevent liquidity crises for foreign-currency debt. All foreign-currency liabilities should have an attached option entitling the borrower to extend performing debt for a specified period at a penalty rate. UDROP is market-oriented; contracting parties determine the option's price. Subsequent derivatives trading cannot undo it because contingent liabilities must also carry the option. No public money is required and all creditors are automatically 'bailed in'. The proposal is rule based and general. This contrasts with the current practice of discretionary and politicized refinancing arrangements cobbled together by the IMF.

Item Type: Article
Official URL: http://www.wiley.com/bw/journal.asp?ref=1367-0271
Additional Information: © 1999 Blackwell Publishing
Library of Congress subject classification: H Social Sciences > HF Commerce
Sets: Departments > European Institute
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 30 Mar 2009 13:34
URL: http://eprints.lse.ac.uk/16884/

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