## Box 1. GFSN Layers

## Source details

**Canonical URL:** [Box 1. GFSN Layers](https://www.imf.org/-/media/files/publications/covid19-special-notes/en-special-series-on-covid-19-gfsn-response-to-covid-19.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/covid19-special-notes/en-special-series-on-covid-19-gfsn-response-to-covid-19.pdf.md)
- [Structured JSON version](/-/media/files/publications/covid19-special-notes/en-special-series-on-covid-19-gfsn-response-to-covid-19.pdf.json)

---

### GFSN composition and functional roles
- The GFSN is largely comprised of countries’ international reserves and external public sources of financing.
- International reserves:
  - Provide countries with self-insurance and often serve as the first line of defense in a crisis.
- Bilateral Swap Agreements (BSAs):
  - Contingent arrangements to exchange currencies between the central banks of two countries.
  - Aim to alleviate liquidity pressures in the financial markets in one country and reduce spillovers to, and financial stability risks in, the other.
  - Drawings are usually subject to central bank approval and pre-announced limits; some lines have no explicit limits (referred here as unlimited BSAs).
- Regional Financing Arrangements (RFAs):
  - Arrangements between groups of countries, usually in the same region, to pool resources to leverage financing for any individual member in a crisis.
  - RFAs discussed include: Arab Monetary Fund (AMF), BRICS Contingent Reserve Arrangement (BCRA), Chiang Mai Initiative Multilateralization (CMIM), Eurasian Fund for Stabilization and Development (EFSD), European Stability Mechanism (ESM), European Union Balance of Payments Assistance Facility (EU BoP), and Latin American Reserve Fund (FLAR).
- International Monetary Fund (IMF):
  - Multilateral institution pooling resources from membership to provide financing to any of its 190 member countries facing actual, prospective, or potential balance of payments needs.
  - Financing modalities include UCT-quality programs, precautionary arrangements, and emergency financing.
  - Concessional financing for low-income countries provided through the Poverty Reduction and Growth Trust.

### Expansion, size, and recent developments
- Since the global financial crisis:
  - Total stock of international reserve holdings more than doubled, reaching almost SDR 10 trillion at end-2020.
  - Size of external resources available through various GFSN layers increased about tenfold, to almost SDR 3 trillion.
- Key drivers of expansion:
  - Introduction and scaling of BSAs among reserve-currency issuer countries and limited BSAs during global crises.
  - Massive scaling-up of lending capacity of the IMF and RFAs during the global financial crisis and the European debt crisis.
  - Expansion of Chinese BSAs in 2009–15; by end-2020 Chinese swaps covered more than 30 countries with the total limit exceeding $500 billion.
- Note on unlimited BSAs:
  - Unlimited BSAs are illustrated in the source material at maximum past drawings.

### Coverage and unevenness
- Only the IMF provides nearly universal access to external financing.
- Best-served countries by the GFSN:
  - Canada, euro area countries, Japan, Switzerland, the United Kingdom, and the United States benefit from the unlimited BSA network among reserve currency-issuer countries.
- Other systemic countries:
  - Have access to BSAs during global crises, though sometimes with relatively low limits.
- Regional coverage via RFAs:
  - Highest coverage in the European Union, followed by the Eurasian Economic Union (EAEU) and ASEAN+3 (the latter has never been activated).
- Most other countries rely only on their own reserves and IMF resources.
- Overall RFA lending during COVID-19:
  - Contribution was limited, about $2 billion.

### GFSN response to COVID-19 — key facts and figures
- Emphasis during the acute phase:
  - Fast liquidity support through BSAs and IMF emergency financing and precautionary arrangements requiring little or no conditionality.
- Fed and BSAs:
  - Drawings from the Fed’s unlimited swap lines increased and exceeded $400 billion at the peak (in April–June 2020).
  - The Fed reestablished temporary limited swap lines for nine countries with the total limit of $450 billion; drawings reached $46 billion at the peak (May–June 2020) for these limited lines.
  - The Fed set up the temporary FIMA overnight repo, used only in limited scale.
- IMF financing during the pandemic:
  - From March 2020 to June 2021, $114 billion was approved for 85 countries through IMF emergency financing and new arrangements or augmentation under existing ones.
  - Emergency assistance was widely used in the first months of the pandemic; several precautionary arrangements were put in place for countries in Latin America.
  - The general allocation of SDRs (in the amount equivalent to about $650 billion) gave a strong boost to member countries’ reserves.
  - IMF provided unprecedented liquidity support to low-income countries, almost doubling its outstanding credit and offering debt service relief through the Catastrophe Containment and Relief Trust.
- Financing gap and burden sharing (March 2020–April 2021 IMF financing requests):
  - Total identified financing gap: $134 billion in 2020–21.
  - Projected filling of the financing gap:
    - IMF: 41.4 percent
    - Multilateral and Bilateral Donors: 29.9 percent
    - Debt Operation: 3.0 percent
    - Others (including private sources, BSAs, and RFAs): 10.0 percent
    - Residual Financing Gap: 15.7 percent
  - MDBs and official bilateral donors were projected to cover about 30 percent of the financing gap of the countries that received IMF financial support.

### Effects on global financial stability and capital flows
- Together with supportive monetary, fiscal, and financial policies (notably massive asset purchases and liquidity injections in advanced economies), GFSN financing:
  - Helped maintain easy financial conditions.
  - Stabilized capital flows to emerging market economies in the first months of the crisis.
  - Mitigated demand for further external financing and reduced use of reserves.
- RFAs:
  - Largely untapped; EU RFAs were untapped as EU countries benefited from BSAs (notably, ECB swap and repo lines and Fed swaps), ECB quantitative easing, and ample EU support through other channels.

### Role of MDBs and official bilateral donors
- MDBs and official bilateral donors provided substantial liquidity support to both low-income countries and emerging market economies, complementing IMF financing.
- For IMF program requests analyzed:
  - Multilateral and Bilateral Donors were projected to provide 29.9 percent of identified financing needs.

### Taking stock and policy implications going forward
- Immediate-term assessment:
  - The GFSN was an effective liquidity backstop during the first year of the COVID-19 crisis.
  - BSAs validated as key during a global liquidity shock, despite uneven coverage.
  - IMF provided fast and forceful emergency financing and unprecedented liquidity support to low-income countries.
  - RFAs were little tapped during the acute phase.
- Challenges ahead:
  - Continuing appropriate support until the crisis is fully resolved will be more challenging as recovery paths diverge.
  - Risks include:
    - Disproportionate pressure on low-income countries and some emerging market economies from a diverging recovery.
    - Monetary stimulus unwinding in advanced economies tightening global financial conditions and triggering capital outflows.
    - Growing public debt levels increasing vulnerabilities and macroeconomic risks.
  - BSAs and IMF emergency financing:
    - Helpful for liquidity but not supportive of macroeconomic adjustment—a need that will grow going forward.
    - BSAs (notably Fed swap lines) could come into dissonance with advanced economies’ central bank mandates if domestic conditions warrant monetary tightening.
- Expected demand shift:
  - Low-income countries and emerging market economies are likely to turn to the IMF for UCT-quality programs in the next phase of the crisis.
  - Stronger deployment of GFSN layers that support policy adjustment (notably RFAs and IMF UCT-quality programs) will be needed.
- Policy recommendation:
  - Ensure a strong quota-based and adequately resourced IMF at the center of the GFSN to meet countries’ financing needs while promoting sound policies.

*Source: Box 1, "GFSN Layers", en-special-series-on-covid-19-gfsn-response-to-covid-19*

### Box 1. GFSN Layers

### Box 1. GFSN Layers

### GFSN composition and functional roles
- The GFSN is largely comprised of countries’ international reserves and external public sources of financing.
- International reserves:
  - Provide countries with self-insurance and often serve as the first line of defense in a crisis.
- Bilateral Swap Agreements (BSAs):
  - Contingent arrangements to exchange currencies between the central banks of two countries.
  - Aim to alleviate liquidity pressures in the financial markets in one country and reduce spillovers to, and financial stability risks in, the other.
  - Drawings are usually subject to central bank approval and pre-announced limits; some lines have no explicit limits (referred here as unlimited BSAs).
- Regional Financing Arrangements (RFAs):
  - Arrangements between groups of countries, usually in the same region, to pool resources to leverage financing for any individual member in a crisis.
  - RFAs discussed include: Arab Monetary Fund (AMF), BRICS Contingent Reserve Arrangement (BCRA), Chiang Mai Initiative Multilateralization (CMIM), Eurasian Fund for Stabilization and Development (EFSD), European Stability Mechanism (ESM), European Union Balance of Payments Assistance Facility (EU BoP), and Latin American Reserve Fund (FLAR).
- International Monetary Fund (IMF):
  - Multilateral institution pooling resources from membership to provide financing to any of its 190 member countries facing actual, prospective, or potential balance of payments needs.
  - Financing modalities include UCT-quality programs, precautionary arrangements, and emergency financing.
  - Concessional financing for low-income countries provided through the Poverty Reduction and Growth Trust.

### Expansion, size, and recent developments
- Since the global financial crisis:
  - Total stock of international reserve holdings more than doubled, reaching almost SDR 10 trillion at end-2020.
  - Size of external resources available through various GFSN layers increased about tenfold, to almost SDR 3 trillion.
- Key drivers of expansion:
  - Introduction and scaling of BSAs among reserve-currency issuer countries and limited BSAs during global crises.
  - Massive scaling-up of lending capacity of the IMF and RFAs during the global financial crisis and the European debt crisis.
  - Expansion of Chinese BSAs in 2009–15; by end-2020 Chinese swaps covered more than 30 countries with the total limit exceeding $500 billion.
- Note on unlimited BSAs:
  - Unlimited BSAs are illustrated in the source material at maximum past drawings.

### Coverage and unevenness
- Only the IMF provides nearly universal access to external financing.
- Best-served countries by the GFSN:
  - Canada, euro area countries, Japan, Switzerland, the United Kingdom, and the United States benefit from the unlimited BSA network among reserve currency-issuer countries.
- Other systemic countries:
  - Have access to BSAs during global crises, though sometimes with relatively low limits.
- Regional coverage via RFAs:
  - Highest coverage in the European Union, followed by the Eurasian Economic Union (EAEU) and ASEAN+3 (the latter has never been activated).
- Most other countries rely only on their own reserves and IMF resources.
- Overall RFA lending during COVID-19:
  - Contribution was limited, about $2 billion.

### GFSN response to COVID-19 — key facts and figures
- Emphasis during the acute phase:
  - Fast liquidity support through BSAs and IMF emergency financing and precautionary arrangements requiring little or no conditionality.
- Fed and BSAs:
  - Drawings from the Fed’s unlimited swap lines increased and exceeded $400 billion at the peak (in April–June 2020).
  - The Fed reestablished temporary limited swap lines for nine countries with the total limit of $450 billion; drawings reached $46 billion at the peak (May–June 2020) for these limited lines.
  - The Fed set up the temporary FIMA overnight repo, used only in limited scale.
- IMF financing during the pandemic:
  - From March 2020 to June 2021, $114 billion was approved for 85 countries through IMF emergency financing and new arrangements or augmentation under existing ones.
  - Emergency assistance was widely used in the first months of the pandemic; several precautionary arrangements were put in place for countries in Latin America.
  - The general allocation of SDRs (in the amount equivalent to about $650 billion) gave a strong boost to member countries’ reserves.
  - IMF provided unprecedented liquidity support to low-income countries, almost doubling its outstanding credit and offering debt service relief through the Catastrophe Containment and Relief Trust.
- Financing gap and burden sharing (March 2020–April 2021 IMF financing requests):
  - Total identified financing gap: $134 billion in 2020–21.
  - Projected filling of the financing gap:
    - IMF: 41.4 percent
    - Multilateral and Bilateral Donors: 29.9 percent
    - Debt Operation: 3.0 percent
    - Others (including private sources, BSAs, and RFAs): 10.0 percent
    - Residual Financing Gap: 15.7 percent
  - MDBs and official bilateral donors were projected to cover about 30 percent of the financing gap of the countries that received IMF financial support.

### Effects on global financial stability and capital flows
- Together with supportive monetary, fiscal, and financial policies (notably massive asset purchases and liquidity injections in advanced economies), GFSN financing:
  - Helped maintain easy financial conditions.
  - Stabilized capital flows to emerging market economies in the first months of the crisis.
  - Mitigated demand for further external financing and reduced use of reserves.
- RFAs:
  - Largely untapped; EU RFAs were untapped as EU countries benefited from BSAs (notably, ECB swap and repo lines and Fed swaps), ECB quantitative easing, and ample EU support through other channels.

### Role of MDBs and official bilateral donors
- MDBs and official bilateral donors provided substantial liquidity support to both low-income countries and emerging market economies, complementing IMF financing.
- For IMF program requests analyzed:
  - Multilateral and Bilateral Donors were projected to provide 29.9 percent of identified financing needs.

### Taking stock and policy implications going forward
- Immediate-term assessment:
  - The GFSN was an effective liquidity backstop during the first year of the COVID-19 crisis.
  - BSAs validated as key during a global liquidity shock, despite uneven coverage.
  - IMF provided fast and forceful emergency financing and unprecedented liquidity support to low-income countries.
  - RFAs were little tapped during the acute phase.
- Challenges ahead:
  - Continuing appropriate support until the crisis is fully resolved will be more challenging as recovery paths diverge.
  - Risks include:
    - Disproportionate pressure on low-income countries and some emerging market economies from a diverging recovery.
    - Monetary stimulus unwinding in advanced economies tightening global financial conditions and triggering capital outflows.
    - Growing public debt levels increasing vulnerabilities and macroeconomic risks.
  - BSAs and IMF emergency financing:
    - Helpful for liquidity but not supportive of macroeconomic adjustment—a need that will grow going forward.
    - BSAs (notably Fed swap lines) could come into dissonance with advanced economies’ central bank mandates if domestic conditions warrant monetary tightening.
- Expected demand shift:
  - Low-income countries and emerging market economies are likely to turn to the IMF for UCT-quality programs in the next phase of the crisis.
  - Stronger deployment of GFSN layers that support policy adjustment (notably RFAs and IMF UCT-quality programs) will be needed.
- Policy recommendation:
  - Ensure a strong quota-based and adequately resourced IMF at the center of the GFSN to meet countries’ financing needs while promoting sound policies.

*Source: Box 1, "GFSN Layers", en-special-series-on-covid-19-gfsn-response-to-covid-19*

### REFERENCES

### en-special-series-on-covid-19-gfsn-response-to-covid-19 - REFERENCES

### Key citations and working papers
- Aizenman, J., H. Ito, and G. Pasricha. 2021. “Central Bank Swap Arrangements in the COVID-19 Crisis.” NBER Working Paper 28585, National Bureau of Economic Research, Cambridge, MA.
- Bank of England. 2016. “Stitching Together the Global Financial Safety Net.” Financial Stability Paper 36. London.
- International Monetary Fund (IMF). 2016. “Adequacy of the Global Financial Safety Net.” Washington, DC.
- International Monetary Fund (IMF). 2017a. “Collaboration between Regional Financial Arrangements and the IMF.” Washington, DC.
- International Monetary Fund (IMF). 2017b. “Collaboration between Regional Financial Arrangements and the IMF – Background Paper.” Washington, DC.
- International Monetary Fund (IMF). 2021a. “Bolstering the Recovery, Countering the Divergence.” The Managing Director’s Global Policy Agenda. Washington, DC.
- International Monetary Fund (IMF). 2021b. “Macroeconomic Developments and Prospects in Low-Income Countries – 2021.” Washington, DC.
- Papamichalis, T., C. Tovar, J. Treviño, J. Eugster, and N. Porter. Forthcoming. “The Systemic Impact of Debt Service Suspension in a Multilayered Global Network Model.” International Monetary Fund, Washington, DC.
- Perks, M., Y. Rao, J. Shin, and K. Tokuoka. 2021. “Evolution of Bilateral Swap Lines.” IMF Working Paper 21/210, International Monetary Fund, Washington, DC.

### Annex: data sources and calculation methods (GFSN evolution, coverage, and response graphs)
- GFSN evolution graph — data sources and treatment:
  - International reserves and IMF lending capacity data are from the IMF.
  - RFAs’ lending capacity: explicitly reported for ESM, EFSM, EU BoP, CMIM, EFSD; estimated for AMF and FLAR using paid-in capital, reserves, and leverage; estimated for BCRA using countries’ access limits; based on outstanding loans for EFSF. All RFA data are from RFAs' annual reports.
  - Limited BSAs exclude CMIM swaps since 2010 (which are included into RFAs); two-way arrangements are counted only once. Data sources: US Federal Reserve website and Perks and others (2021).
  - Unlimited BSAs: have no explicit limit; for illustration, estimated at maximum past drawings.

- GFSN coverage graph — definitions and assumptions:
  - Countries excluded: those with unlimited standing swaps (Canada, euro area countries, Japan, Switzerland, the United Kingdom, and the United States), plus China, and Venezuela.
  - Other systemic countries: identified as top 10 countries (besides those excluded above) with the highest alpha centrality measures for portfolio investments and interbank positions; these comprise Australia, Brazil, Denmark, India, Korea, Mexico, Norway, Singapore, Sweden, and Turkey.
  - IMF access assumptions:
    - PRGT-eligible countries: 300 percent of quota.
    - Other (GRA-eligible) countries: 435 percent of quota.
  - RFA access:
    - Explicitly reported by some RFAs (CMIM, BCRA).
    - Estimated for others using paid-in capital and leverage (AMF, FLAR), past experience of modifying reported access (EFSD), or assuming countries have no clear limits and may borrow up to lending capacity (ESM, EFSM, EU BoP).
    - EFSF is not expected to provide new loans and is dropped from the calculations.
    - For EU countries, the sum of individual country’s access exceeds EU RFAs’ lending capacity, reflecting past experience that EU RFAs can massively scale up their lending capacity when needed.
    - All RFA data are from RFAs' annual reports.

- GFSN response graph — components and data sources:
  - Reserve use: defined as the negative monthly change of international foreign assets, calculated at fixed exchange rates; valuation effects are calculated using reserve composition and cross exchange rates. Data source: IMF IFS database.
  - IMF commitments: include new emergency financing, precautionary arrangements, disbursing arrangements, and augmentation under existing programs, cumulative since the beginning of the crisis. Data source: IMF.
  - Fed unlimited swaps: actual outstanding US dollar swap amounts between the Fed and the five central banks (Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Swiss National Bank). Data source: Fed website.
  - Fed swap limits: total swap lines limit established by the Fed for the nine central banks (Australia, Brazil, Denmark, Korea, Mexico, New Zealand, Norway, Singapore, and Sweden). Data source: Fed website.
  - Chinese swap limits: cumulative increase since the beginning of the crisis of the swap lines limits established by the People’s Bank of China. Data source: Perks and others (2021).
  - Other swap limits: cumulative increase since the beginning of the crisis of other swap lines limits. Data source: Perks and others (2021).
  - RFA financing: financing announced by RFAs, cumulative since beginning of the crisis. Data sources: RFAs’ press releases and the 2020 annual reports (when available).

*References and data descriptions as listed in the source PDF.*

---


_Source: https://www.imf.org/-/media/files/publications/covid19-special-notes/en-special-series-on-covid-19-gfsn-response-to-covid-19.pdf_