Guidotti–Greenspan rule
The Guidotti–Greenspan rule states that a country's reserves should equal short-term external debt (one-year or less maturity), implying a ratio of reserves-to-short term debt of 1.[1][2][3] The rationale is that countries should have enough reserves to resist a massive withdrawal of short term foreign capital.
The rule is named after Pablo Guidotti – Argentine former deputy minister of finance – and Alan Greenspan – former chairman of the Federal Reserve Board of the United States. Guidotti first stated the rule in a G-33 seminar in 1999, while Greenspan widely publicized it in a speech at the World Bank.[4] In subsequent research Guzman Calafell and Padilla del Bosque found that the ratio of reserves to external debt is a relevant predictor of an external crisis.[5]
References
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