General Agreements to Borrow (GAB)

The General Agreements to Borrow (GAB) is an agreement among the central banks of the Group of Ten (G10) countries to provide short-term loans to each other in times of need. The GAB was established in 1962 as a way to supplement the resources of the International Monetary Fund (IMF) in the event of a financial crisis. The GAB is not a formal organization, but rather a set of understandings among the G10 central banks.

The GAB provides for loans of up to SDR 600 billion (about $750 billion) to any G10 central bank that is experiencing a balance of payments problem. The loans are made at a floating interest rate and are repayable within one year. The GAB has been used only once, in 1978, when the United Kingdom borrowed SDR 5.3 billion to help finance its balance of payments deficit.

The GAB is seen as an important part of the international financial system. It provides a mechanism for G10 central banks to help each other in times of need, and it helps to ensure the stability of the international monetary system.

The GAB has been criticized for being too limited in scope. It only provides for loans to G10 central banks, and it does not provide for loans to other countries or institutions. The GAB has also been criticized for being too expensive. The interest rate on GAB loans is a floating rate, which means that it can fluctuate significantly. This can make it difficult for G10 central banks to afford to borrow from the GAB.

Despite these criticisms, the GAB remains an important part of the international financial system. It provides a mechanism for G10 central banks to help each other in times of need, and it helps to ensure the stability of the international monetary system.