In the global currency turmoil, the suggestion has been made that the International Monetary Fund or some other institution be authorized to become a lender of last resort to countries with currency problems. But some economists argue that such an arrangement creates its own problems and hazards.

• Within a country, the function of a lender of last resort is to lend to temporarily illiquid, but solvent, institutions that have lost public confidence and face a depositor panic -- but not to insolvent entities which have pursued foolish policies.

• One problem in translating this concept to the international arena is that governments and central banks would be reluctant to authorize some international central bank to lend without limit.

• Even now, solvent borrowers can borrow short and ride out panics.

• It is unlikely that an international lender of last resort would be as knowledgeable about countries' financial systems, assets and collateral as are national central banks that deal with their banks every day.

Then there is the problem of what an international lender of last resort could take as collateral for its loan. What could be offered that was not pledged elsewhere?

Critics of this scheme argue that helping illiquid countries is not the same as helping illiquid banking systems within a country. No new "architectures" can shore up financial systems destabilized in large part by poor government policy.

Source: Geoffrey Wood (City University Business School, London), "A Lender of Last Resort? It's a Foolish Proposition," Wall Street Journal, October 29, 1998.