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New options to improve the global financial safety net


An initiative from the Bank of England and Bank for International Settlements could prove to be the start of timely support for international banking markets.

International financial stability has not been seriously tested by the COVID-19 pandemic, but this may be about to change as advanced economies recover with a growing risk of sharp divergence between their economic performances and those of most middle- and low-income countries.

Since the global financial crisis a decade ago, the international community has worked to strengthen the global financial safety net. The current system has four key elements – the International Monetary Fund (IMF), multilateral regional financial arrangements (RFAs), national foreign exchange reserves, and bilateral central bank swaps. But each has its drawbacks for users of the wider international system.

The G20 decision in April 2020 to increase IMF resources by $650 billion boosted its ability to respond to pandemic-related shocks and at the start of August 2021 the IMF Governing Board announced an allocation of $650 billion of SDR (Special Drawing Rights), the IMF’s liquidity instrument. But countries accessing IMF resources face a loss of sovereignty because of the conditions which must be agreed and the monitoring while arrangements are in place.

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