## Section V

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---

### Empirical findings on BSL use and effects
- Countries are more likely to sign and roll over a BSL designed to alleviate balance of payments (BOP) needs, as their external position weakens.
- The increased likelihood of signing and rolling over BSLs as external positions weaken:
  - suggests BSLs have become a valuable part of the GFSN; and
  - could indicate a risk of delayed macro policy adjustments for countries with weakening external positions, particularly given that analysis found little evidence to suggest BSLs are associated with improved macroeconomic policies.
- Countries are more likely to sign a BSL with China if they have strong trade linkages.
  - Analysis suggests a stronger link with countries with a larger export exposure to Chinese goods than with countries that exhibit a major import exposure to Chinese goods.
- Fed BSLs appear to have been effective at stabilizing market conditions during the COVID-19 pandemic.
  - The positive impact of Fed BSLs during the pandemic exceeded that typically associated with other BSLs.
  - This demonstrates the vital role that BSLs can play in the GFSN, especially at times of severe market disruption and U.S. dollar liquidity shortage.

### Paper structure (as presented)
- Section II provides a literature review.
- Section III includes a comprehensive overview of developments of BSLs over the past decade, in the context of the continued global integration and the evolving GFSN.
- Section IV describes key features of BSLs including their mechanics.
- Section V presents the empirical analysis.
- Section VI discusses the policy implications, followed by the conclusions.

### Key literature highlights (Section II summary)
- AE BSLs:
  - Bahaj and Reis (2018): Fed swap lines with five major central banks encourage (ex-ante) inflows into source-currency assets and put a ceiling on deviations from covered interest parity, reducing ex-post funding risk.
  - Bahaj and Reis (2019, 2020) and Rose and Spiegel (2012): Fed swap network effective at stabilizing financial conditions.
  - Aizenman et al. (2021): identified motivations behind Fed BSLs with five major AE central banks and found announcement effects on financial variables.
  - ECB (2014): effectiveness of ECB swap lines supported by credible commitment to provide sufficient foreign currency liquidity; pricing policy to hinder opportunistic bidding or stigma; and alleviation of actual short-term funding needs.
- China BSLs:
  - Lin et al. (2016): size of bilateral trade is a key determinant of the initiation of Chinese BSLs.
  - Xia (2020) and Zhang et al. (2017): evidence that Chinese BSLs promote bilateral trade with China.
  - McDowell (2019): questioned effectiveness in promoting trade settlement in renminbi given limited drawings; framed China’s BSLs as potential financial statecraft dependent on China’s willingness to act as a unilateral crisis lender and further internationalize the renminbi.
- Broader implications:
  - Destais (2016): BSLs emerged as a de facto key feature of the international monetary system; noted lack of conditionality and relative precariousness compared to other GFSN elements; recommended an internationally agreed set of principles.
  - Mauro and Zettelmeyer (2017): suggested governance improvements and coordination with the IMF, including extending access to BSLs for large EMs and AEs that pass pre-qualification tests (e.g., IMF Flexible Credit Line), and proposed a combined BSL-FCL two-step facility with BSLs first and IMF backup financing (e.g., after six months).

### BSLs in the evolving Global Financial Safety Net (Section III summary)
- Global integration trends and vulnerabilities:
  - China accounts for about 13 percent of total global merchandise trade.
  - Global financial cycles have increased in amplitude and duration; capital flows more volatile; non-bank finance channels expanded.
  - EMs often have limited access to reserve currency while a large share of cross-border activity is denominated or settled in the U.S. dollar, leaving EMs vulnerable to a dollar liquidity shortage.
- Size and composition of the GFSN (available resources at end-2020):
  - Total GFSN: US$ 18.5 trillion at end-2020.
  - Gross international reserves: about US$ 14.3 trillion.
  - Bilateral swap lines: about US$ 1.9 trillion.
  - Regional financing arrangements (RFAs): about US$ 1.3 trillion.
  - IMF: about US$ 1 trillion.
- Change since end-2015:
  - The GFSN expanded by US$ 3.2 trillion compared with end-2015, mostly due to a reserve build-up, and in part due to the expansion of the BSL network by around US$ 640 billion.

### Evolution of the global BSL network
- Number of BSLs:
  - rose from just a few at end-2007 to 39 at end-2009; 67 at end-2015; 74 by end-2019; 91 in 2020.
- Global BSL network estimated values:
  - Estimated worth at end-2019: US$ 1.4 trillion.
  - Dominated by the Fed’s permanent standing BSL network among AEs: estimated at US$ 610 billion.
  - Network of BSLs between Asian countries: estimated at US$ 470 billion.
- Global totals (selected year datapoints):
  - 2010: Number of BSLs = 25; Amount of BSLs with limits (A) = 207; Amount of unlimited BSLs (B) = 110; Total Amount of BSLs (=A+B) = 293; Global amount = 500.
  - 2015: Number of BSLs = 67; Amount of BSLs with limits (A) = 631; Amount of unlimited BSLs (B) = 328; Total Amount of BSLs (=A+B) = 610; Global (A) = 1,242.
  - 2019: Number of BSLs = 74; Amount of BSLs with limits (A) = 757; Amount of unlimited BSLs (B) = 466; Total Amount of BSLs (=A+B) = 610; Global (A) = 1,367.
  - 2020: Number of BSLs = 91; Amount of BSLs with limits (A) = 1,275; Amount of unlimited BSLs (B) = 496; Total Amount of BSLs (=A+B) = 610; Global (A) = 1,885.

### Notable BSL developments before COVID-19
- Fed permanent standing BSLs with the five major AE central banks; in 2013 these six central banks announced their BSL network would remain permanently in place.
- Fed temporary BSLs with nine AEs and EMs during the GFC; these expired in 2010 but were reintroduced during the COVID-19 pandemic.
- ECB provided BSLs during the GFC to Latvia, Hungary, Poland, Denmark, and Sweden.
- China’s BSL expansion:
  - China signed six BSLs in 2009, including with Argentina, Indonesia and Malaysia.
  - China expanded its BSLs to 32 by end-2015.
  - After 2015 the increase slowed, leaving the number of Chinese BSLs at 30 (worth US$ 500 billion) at end-2019.

### Evolution of the BSL network (Appendix Table 1 highlights)
- Total number of BSLs reached 91 by end-2020, amounting to US$ 1.9 trillion.
- The expansion since 2007–2020 is driven largely by the Fed’s activity (temporary and permanent lines), China’s network of bilateral swap lines, ECB, BoJ, and GCC contributions.
- Fed’s reestablished temporary BSLs in March 2020 with nine AEs and EMs totaled US$ 450 billion (peak drawing as of May 27, 2020).
- Peak total drawing under Fed BSLs: around US$ 450 billion (end-May 2020) versus US$ 583 billion at the peak of the Global Financial Crisis (end-Dec 2008, peak column in Table 2).

### BSLs during the COVID-19 crisis — key quantitative facts and draws
- Aggregate: 91 BSLs totaling US$ 1.9 trillion by end-2020.
- Fed temporary BSLs with nine economies:
  - Ceiling/Total reported in Table 2: Total 449 (Ceiling/Total), Outstanding May 27, 2020 (peak) 18 (table layout ambiguous); detailed source table shows aggregate ceiling 450, outstanding May 27, 2020 (peak) 46, end-2020 outstanding 4, end-Dec 2008 (peak) 225.
- Permanent Fed standing BSLs among the six major central banks — significant drawings during COVID-19 pandemic:
  - Bank of Japan drew US$ 226 billion (peak).
  - ECB drew up to US$ 143 billion.
  - United Kingdom drew US$ 23 billion.
  - Swiss National Bank drew US$ 10 billion.
- Fed temporary BSL drawings among nine economies (examples):
  - Korea: US$ 19 billion drawn.
  - Singapore: US$ 10 billion drawn.
  - Mexico: US$ 7 billion drawn.
- China’s reported outstanding drawing of its BSLs: around US$ 8 billion at end-2020, dominated by Mongolia and Pakistan.
- Qatar tripled its Riyal-denominated BSL with Turkey, equivalent to US$ 15 billion.

### Mechanics of BSLs (operational features)
- Core mechanic: exchange of currencies between two central banks; swapped amounts exchanged back at a specified future date (often using same exchange rate fixed at first transaction).
- Standard maturity for drawn BSLs is usually 90 days; many BSLs have 3-year durations subject to rollover; Fed standing lines among major central banks have existed since 2013.
- Counting in reserves: only drawn BSLs should be counted as gross international reserves; undrawn lines are contingent foreign exchange resources (reported as contingent resources).

### Objectives of BSLs
- Easing pressure on currency funding markets (e.g., Fed BSLs to support U.S. dollar funding; ECB BSLs with non-euro countries).
- Mitigating balance of payments (BOP) needs for recipient countries.
- Promoting currency internationalization and facilitating trade (notably cited objectives for Chinese BSLs: (i) promoting renminbi internationalization; (ii) facilitating international trade and investment; (iii) ensuring financial market stability via renminbi liquidity).
- Multiple objectives may differ between creditor and recipient, complicating classification.

### Terms and conditions — observed patterns
- Currency: Most BSLs provided in creditor’s own currency; some exceptions where creditor provides U.S. dollar-denominated BSLs (e.g., Japanese MoF BSLs to some Asian EMs; India–Maldives BSL during COVID-19).
- Pricing: Chinese BSLs use overnight SHIBOR as benchmark plus a spread reflecting recipient credit risk; examples of costs above SHIBOR:
  - Argentina: 400 basis points (EMBIG spread on signing day 646).
  - Mongolia: 200 basis points (EMBIG spread 468).
  - Turkey: 200 basis points (EMBIG spread 541).
- At end-2020, the interest rate under the Fed’s swaps was around 0.3 percent.
- Data limitation: beyond BSLs between advanced economies, terms and drawing information often limited or not publicly available.

### Empirical analysis — data and approach
- Dataset: Unbalanced annual panel for emerging market and developing economies for 2000–2019; China excluded as recipient from panel.
- Key variables included:
  - external debt (% of GDP), current account (% of GDP), gross foreign reserves (months of imports), exchange rate change (annual %), real GDP growth (percent), CPI inflation (percent), fiscal primary balance (% of GDP), real GDP per capita (PPP), net capital inflows (% of GDP), sum of exports and imports (% of GDP), IMF net lending (% of GDP).
- Summary panel statistics (means of lagged variables; sample excludes China):
  - D_BSL_sign mean 0.03 (N = 2,271).
  - External debt mean 53.38 (% of GDP).
  - Current account mean -2.88 (% of GDP).
  - Gross foreign reserves mean 5.35 (months of imports).
  - Real GDP growth mean 4.21 (percent).
  - CPI inflation mean 6.94 (percent).

### Regression findings — motivations for BSLs (key quantitative results)
- Renewal effect:
  - 퐷__퐵푆퐿__푒푛푑 (dummy that an existing BSL expires in year t) is highly significant; coefficient implies that if an existing BSL is expiring in year t, the likelihood of signing a BSL (rollover or new) in the same year is about 40-50 percent higher than otherwise.
- External debt effect:
  - Lag of external debt (% of GDP) positive and significant; an increase in external debt/GDP by 10 percentage points raises the probability of signing a BSL by 0.2–0.3 percent (coefficient 0.0002 with significance ** in Table 3a).
- Low reserves interaction:
  - Interaction of BSL_end with a dummy of low gross foreign reserves (less than 5 months of imports) yields a positive and significant coefficient (e.g., 0.2686* in Table 3a; 0.3267** and large logit coefficients in Table 3b).
- Trade channel to China:
  - Countries with higher exports to China (percent of GDP) are more likely to sign a BSL with China — sample averages: exports to China 6.4 (signing countries) vs 2.4 (never signed).
  - Regression coefficient on lag of exports to China 0.0031** in Table 3b (FE); logit specifications show positive but sometimes slightly below significance.

### Regression findings — effectiveness for financial stability and policy
- Impact on EMBI/CDS spreads (annual panel, dynamic specs):
  - Signing a BSL in current year estimated to lower EMBI spreads by 66 basis points (FE) but estimate not statistically significant (Table 4, D_BSL_sign = -66.14).
  - System GMM gives similar null results; CDS spread results also not statistically significant.
- Cross-section after COVID-19 onset (high-frequency analysis):
  - Countries entering COVID-19 with BSLs had lower hikes in risk premia; coefficients on any-BSL dummy are generally negative but often not statistically significant.
  - Change in CDS spreads between end-2019 and end-April 2020: coefficient on any-BSL dummy turns significant in some specifications (Table 7).
- Fed-specific impact:
  - The Fed’s BSLs show stronger and more statistically robust association with reduced credit risk indicators in short-run high-frequency tests.
  - Example: change in CDS spreads between end-2019 and end-April/Mar 2020 shows statistically significant negative coefficients for Fed BSL access (Table 8: Change of CDS end-Mar coefficient -249.23*; end-Apr -275.02** in columns (3) and (4)).
- Macroeconomic policy effects:
  - Little evidence that BSLs promote sound macroeconomic policies as proxied by current account balance; system GMM estimates of lagged D_BSL_signed positive but not significant (Table 5).

### Additional empirical results
- BSLs and IMF arrangements:
  - Positive but not statistically significant correlation between signing a BSL and initiating an IMF financial arrangement (Table 6: D_BSL_sign coefficient 0.03 not significant).
  - Examples of IMF-BSL collaboration listed: Argentina (SBA 2018-2020, counterpart China), Egypt (EFF 2016-2019, China), Mongolia (EFF 2017-2020, China), Pakistan (EFF 2019-2022, China).
- BSLs and trade:
  - System GMM estimates show lagged D_BSL_sign coefficients on imports and exports are positive but not statistically significant (Table A4).

### Key policy implications
- BSLs are an important source of liquidity support but may, in some cases, be associated with prolonging weak policies:
  - Recipient countries are more likely to sign/roll over BSLs when external positions weaken; little evidence that BSLs promote stronger macroeconomic policies post-extension.
- Better integration of BSLs with potential IMF-supported programs could strengthen the Global Financial Safety Net (GFSN):
  - BSLs can help fill short-term financing needs and catalyze financing; IMF programs can anchor policies via conditionality.
- Greater transparency recommended:
  - Improve disclosure of drawings, terms and conditions of BSLs (including presenting BSLs separately in the IMF’s Data Template on International Reserves and Foreign Currency Liquidity and considering disclosing drawing information with an appropriate lag).

### Conclusions (main takeaways)
- The paper compiles a comprehensive BSL dataset and documents their evolution through end-2020.
- Empirical results:
  - Fed BSLs appear effective at stabilizing market conditions during the COVID-19 pandemic in high-frequency tests.
  - Recipient countries are more likely to sign/roll over BSLs when external vulnerability rises (e.g., higher external debt, low reserves).
  - Countries exporting more to China are more likely to sign Chinese BSLs.
  - Overall, BSLs do not show clear, statistically significant effects on EMBI/CDS spreads in annual panel regressions, nor convincing evidence that BSLs promote sound macroeconomic policies.
- Data gaps limit inference; improved BSL data (terms, drawings) would facilitate further analysis, especially for non-Fed and non-China BSLs.

*Italic: Source — wpiea2021210-print-pdf - Section V*

### Section V:

### Section V

### Empirical findings on BSL use and effects
- Countries are more likely to sign and roll over a BSL designed to alleviate balance of payments (BOP) needs, as their external position weakens.
- The increased likelihood of signing and rolling over BSLs as external positions weaken:
  - suggests BSLs have become a valuable part of the GFSN; and
  - could indicate a risk of delayed macro policy adjustments for countries with weakening external positions, particularly given that analysis found little evidence to suggest BSLs are associated with improved macroeconomic policies.
- Countries are more likely to sign a BSL with China if they have strong trade linkages.
  - Analysis suggests a stronger link with countries with a larger export exposure to Chinese goods than with countries that exhibit a major import exposure to Chinese goods.
- Fed BSLs appear to have been effective at stabilizing market conditions during the COVID-19 pandemic.
  - The positive impact of Fed BSLs during the pandemic exceeded that typically associated with other BSLs.
  - This demonstrates the vital role that BSLs can play in the GFSN, especially at times of severe market disruption and U.S. dollar liquidity shortage.

### Paper structure (as presented)
- Section II provides a literature review.
- Section III includes a comprehensive overview of developments of BSLs over the past decade, in the context of the continued global integration and the evolving GFSN.
- Section IV describes key features of BSLs including their mechanics.
- Section V presents the empirical analysis.
- Section VI discusses the policy implications, followed by the conclusions.

### Key literature highlights (Section II summary)
- AE BSLs:
  - Bahaj and Reis (2018): Fed swap lines with five major central banks encourage (ex-ante) inflows into source-currency assets and put a ceiling on deviations from covered interest parity, reducing ex-post funding risk.
  - Bahaj and Reis (2019, 2020) and Rose and Spiegel (2012): Fed swap network effective at stabilizing financial conditions.
  - Aizenman et al. (2021): identified motivations behind Fed BSLs with five major AE central banks and found announcement effects on financial variables.
  - ECB (2014): effectiveness of ECB swap lines supported by credible commitment to provide sufficient foreign currency liquidity; pricing policy to hinder opportunistic bidding or stigma; and alleviation of actual short-term funding needs.
- China BSLs:
  - Lin et al. (2016): size of bilateral trade is a key determinant of the initiation of Chinese BSLs.
  - Xia (2020) and Zhang et al. (2017): evidence that Chinese BSLs promote bilateral trade with China.
  - McDowell (2019): questioned effectiveness in promoting trade settlement in renminbi given limited drawings; framed China’s BSLs as potential financial statecraft dependent on China’s willingness to act as a unilateral crisis lender and further internationalize the renminbi.
- Broader implications:
  - Destais (2016): BSLs emerged as a de facto key feature of the international monetary system; noted lack of conditionality and relative precariousness compared to other GFSN elements; recommended an internationally agreed set of principles.
  - Mauro and Zettelmeyer (2017): suggested governance improvements and coordination with the IMF, including extending access to BSLs for large EMs and AEs that pass pre-qualification tests (e.g., IMF Flexible Credit Line), and proposed a combined BSL-FCL two-step facility with BSLs first and IMF backup financing (e.g., after six months).

### BSLs in the evolving Global Financial Safety Net (Section III summary)
- Global integration trends and vulnerabilities:
  - China accounts for about 13 percent of total global merchandise trade.
  - Global financial cycles have increased in amplitude and duration; capital flows more volatile; non-bank finance channels expanded.
  - EMs often have limited access to reserve currency while a large share of cross-border activity is denominated or settled in the U.S. dollar, leaving EMs vulnerable to a dollar liquidity shortage.
- Size and composition of the GFSN (available resources at end-2020):
  - Total GFSN: US$ 18.5 trillion at end-2020.
  - Gross international reserves: about US$ 14.3 trillion.
  - Bilateral swap lines: about US$ 1.9 trillion.
  - Regional financing arrangements (RFAs): about US$ 1.3 trillion.
  - IMF: about US$ 1 trillion.
- Change since end-2015:
  - The GFSN expanded by US$ 3.2 trillion compared with end-2015, mostly due to a reserve build-up, and in part due to the expansion of the BSL network by around US$ 640 billion.
- Evolution of the global BSL network:
  - Number of BSLs: rose from just a few at end-2007 to 39 at end-2009; 67 at end-2015; 74 by end-2019; 91 in 2020.
  - Global BSL network estimated values:
    - Estimated worth at end-2019: US$ 1.4 trillion.
    - Dominated by the Fed’s permanent standing BSL network among AEs: estimated at US$ 610 billion.
    - Network of BSLs between Asian countries: estimated at US$ 470 billion.
  - Global totals (selected year datapoints from Table 1):
    - 2010: Number of BSLs = 25; Amount of BSLs with limits (A) = 207; Amount of unlimited BSLs (B) = 110; Total Amount of BSLs (=A+B) = 293; Global amount = 500.
    - 2015: Number of BSLs = 67; Amount of BSLs with limits (A) = 631; Amount of unlimited BSLs (B) = 328; Total Amount of BSLs (=A+B) = 610; Global (A) = 1,242.
    - 2019: Number of BSLs = 74; Amount of BSLs with limits (A) = 757; Amount of unlimited BSLs (B) = 466; Total Amount of BSLs (=A+B) = 610; Global (A) = 1,367.
    - 2020: Number of BSLs = 91; Amount of BSLs with limits (A) = 1,275; Amount of unlimited BSLs (B) = 496; Total Amount of BSLs (=A+B) = 610; Global (A) = 1,885.
- Notable BSL developments before COVID-19:
  - Fed permanent standing BSLs with the five major AE central banks (Fed, ECB, Bank of England, Bank of Japan, Swiss National Bank, Bank of Canada); in 2013 these six central banks announced their BSL network would remain permanently in place.
  - Fed temporary BSLs with nine AEs and EMs during the GFC, including Australia, Denmark, Korea, New Zealand, Norway, Singapore, Sweden, Brazil, and Mexico; these expired in 2010 but were reintroduced during the COVID-19 pandemic.
  - ECB provided BSLs during the GFC to Latvia, Hungary, Poland, Denmark, and Sweden.
  - China’s BSL expansion:
    - China signed six BSLs in 2009, including with Argentina, Indonesia and Malaysia.
    - China expanded its BSLs to 32 by end-2015.
    - After 2015 the increase slowed, leaving the number of Chinese BSLs at 30 (worth US$ 500 billion) at end-2019.

*Italic: Source — wpiea2021210-print-pdf - Section V*

### Appendix Table 1 for current Chinese BSLs).

### wpiea2021210-print-pdf - Appendix Table 1 for current Chinese BSLs)

### Evolution of the BSL network
- Total number of BSLs reached 91 by end-2020, amounting to US$ 1.9 trillion.
- The expansion since 2007–2020 is driven largely by the Fed’s activity (temporary and permanent lines), China’s network of bilateral swap lines, ECB, BoJ, and GCC contributions.
- Fed’s reestablished temporary BSLs in March 2020 with nine AEs and EMs totaled US$ 450 billion (peak drawing as of May 27, 2020).
- Peak total drawing under Fed BSLs: around US$ 450 billion (end-May 2020) versus US$ 583 billion at the peak of the Global Financial Crisis (end-Dec 2008, peak column in Table 2).

### BSLs during the COVID-19 crisis — key quantitative facts and draws
- Aggregate: 91 BSLs totaling US$ 1.9 trillion by end-2020.
- Fed temporary BSLs with nine economies: Ceiling/Total reported in Table 2: Total 449 (Ceiling/Total), Outstanding May 27, 2020 (peak) 18 (unclear context in table layout); Table 2 details show Fed temporary lines with other nine economies aggregate ceiling 450, outstanding May 27, 2020 (peak) 46, end-2020 outstanding 4, end-Dec 2008 (peak) 225 — see source table for exact cell mapping.
- Permanent Fed standing BSLs among the six major central banks: significant drawings during COVID-19 pandemic:
  - Bank of Japan drew US$ 226 billion (peak).
  - ECB drew up to US$ 143 billion.
  - United Kingdom drew US$ 23 billion.
  - Swiss National Bank drew US$ 10 billion.
- Fed temporary BSL drawings among nine economies (examples):
  - Korea: US$ 19 billion drawn.
  - Singapore: US$ 10 billion drawn.
  - Mexico: US$ 7 billion drawn.
- China’s reported outstanding drawing of its BSLs: around US$ 8 billion at end-2020, dominated by Mongolia and Pakistan.
- Qatar tripled its Riyal-denominated BSL with Turkey, equivalent to US$ 15 billion.

### Mechanics of BSLs (operational features)
- Core mechanic: exchange of currencies between two central banks; swapped amounts exchanged back at a specified future date (often using same exchange rate fixed at first transaction).
- Standard maturity for drawn BSLs is usually 90 days; many BSLs have 3-year durations subject to rollover; Fed standing lines among major central banks have existed since 2013.
- Counting in reserves: only drawn BSLs should be counted as gross international reserves; undrawn lines are contingent foreign exchange resources (reported as contingent resources).

### Objectives of BSLs
- Easing pressure on currency funding markets (e.g., Fed BSLs to support U.S. dollar funding; ECB BSLs with non-euro countries).
- Mitigating balance of payments (BOP) needs for recipient countries.
- Promoting currency internationalization and facilitating trade (notably cited objectives for Chinese BSLs: (i) promoting renminbi internationalization; (ii) facilitating international trade and investment; (iii) ensuring financial market stability via renminbi liquidity).
- Multiple objectives may differ between creditor and recipient, complicating classification.

### Terms and conditions — observed patterns
- Currency: Most BSLs provided in creditor’s own currency; some exceptions where creditor provides U.S. dollar-denominated BSLs (e.g., Japanese MoF BSLs to some Asian EMs; India–Maldives BSL during COVID-19).
- Pricing: Chinese BSLs use overnight SHIBOR as benchmark plus a spread reflecting recipient credit risk; examples of costs above SHIBOR:
  - Argentina: 400 basis points (EMBIG spread on signing day 646).
  - Mongolia: 200 basis points (EMBIG spread 468).
  - Turkey: 200 basis points (EMBIG spread 541).
- At end-2020, the interest rate under the Fed’s swaps was around 0.3 percent.
- Data limitation: beyond BSLs between advanced economies, terms and drawing information often limited or not publicly available.

### Empirical analysis — data and approach
- Unbalanced annual panel for emerging market and developing economies for 2000–2019; China excluded as recipient from panel.
- Key variables: external debt (% of GDP), current account (% of GDP), gross foreign reserves (months of imports), exchange rate change (annual %), real GDP growth (percent), CPI inflation (percent), fiscal primary balance (% of GDP), real GDP per capita (PPP), net capital inflows (% of GDP), sum of exports and imports (% of GDP), IMF net lending (% of GDP).
- Summary panel statistics (means of lagged variables; sample excludes China):
  - D_BSL_sign mean 0.03 (N = 2,271).
  - External debt mean 53.38 (% of GDP).
  - Current account mean -2.88 (% of GDP).
  - Gross foreign reserves mean 5.35 (months of imports).
  - Real GDP growth mean 4.21 (percent).
  - CPI inflation mean 6.94 (percent).

### Regression findings — motivations for BSLs (summary of key quantitative results)
- Renewal effect: 퐷__퐵푆퐿__푒푛푑 (dummy that an existing BSL expires in year t) is highly significant; coefficient implies that if an existing BSL is expiring in year t, the likelihood of signing a BSL (rollover or new) in the same year is about 40-50 percent higher than otherwise.
- External debt effect: Lag of external debt (% of GDP) positive and significant; an increase in external debt/GDP by 10 percentage points raises the probability of signing a BSL by 0.2–0.3 percent (coefficient 0.0002 with significance ** in Table 3a).
- Low reserves interaction: Interaction of BSL_end with a dummy of low gross foreign reserves (less than 5 months of imports) yields a positive and significant coefficient (e.g., 0.2686* in Table 3a; 0.3267** and large logit coefficients in Table 3b).
- Trade channel to China: Countries with higher exports to China (percent of GDP) are more likely to sign a BSL with China — sample averages: exports to China 6.4 (signing countries) vs 2.4 (never signed); regression coefficient on lag of exports to China 0.0031** in Table 3b (FE), with logit specifications showing positive but sometimes slightly below significance.

### Regression findings — effectiveness for financial stability and policy
- Impact on EMBI/CDS spreads (annual panel, dynamic specs):
  - Signing a BSL in current year estimated to lower EMBI spreads by 66 basis points (FE) but estimate not statistically significant (Table 4, D_BSL_sign = -66.14).
  - System GMM gives similar null results; CDS spread results also not statistically significant.
- Cross-section after COVID-19 onset (high-frequency analysis):
  - Countries entering COVID-19 with BSLs had lower hikes in risk premia; coefficients on any-BSL dummy are generally negative but often not statistically significant.
  - Change in CDS spreads between end-2019 and end-April 2020: coefficient on any-BSL dummy turns significant in some specifications (Table 7).
- Fed-specific impact:
  - The Fed’s BSLs show stronger and more statistically robust association with reduced credit risk indicators in short-run high-frequency tests.
  - Example: change in CDS spreads between end-2019 and end-April/Mar 2020 shows statistically significant negative coefficients for Fed BSL access (Table 8: Change of CDS end-Mar coefficient -249.23*; end-Apr -275.02** in columns (3) and (4)).
- Macroeconomic policy effects:
  - Little evidence that BSLs promote sound macroeconomic policies as proxied by current account balance; system GMM estimates of lagged D_BSL_signed positive but not significant (Table 5).

### Additional empirical results
- BSLs and IMF arrangements:
  - Positive but not statistically significant correlation between signing a BSL and initiating an IMF financial arrangement (Table 6: D_BSL_sign coefficient 0.03 not significant).
  - Examples of IMF-BSL collaboration listed: Argentina (SBA 2018-2020, counterpart China), Egypt (EFF 2016-2019, China), Mongolia (EFF 2017-2020, China), Pakistan (EFF 2019-2022, China).
- BSLs and trade:
  - System GMM estimates show lagged D_BSL_sign coefficients on imports and exports are positive but not statistically significant (Table A4).

### Key policy implications (from paper)
- BSLs are an important source of liquidity support but may, in some cases, be associated with prolonging weak policies:
  - Recipient countries are more likely to sign/roll over BSLs when external positions weaken; little evidence that BSLs promote stronger macroeconomic policies post-extension.
- Better integration of BSLs with potential IMF-supported programs could strengthen the Global Financial Safety Net (GFSN):
  - BSLs can help fill short-term financing needs and catalyze financing; IMF programs can anchor policies via conditionality.
- Greater transparency recommended:
  - Improve disclosure of drawings, terms and conditions of BSLs (including presenting BSLs separately in the IMF’s Data Template on International Reserves and Foreign Currency Liquidity and considering disclosing drawing information with an appropriate lag).

### Conclusions (main takeaways)
- The paper compiles a comprehensive BSL dataset and documents their evolution through end-2020.
- Empirical results:
  - Fed BSLs appear effective at stabilizing market conditions during the COVID-19 pandemic in high-frequency tests.
  - Recipient countries are more likely to sign/roll over BSLs when external vulnerability rises (e.g., higher external debt, low reserves).
  - Countries exporting more to China are more likely to sign Chinese BSLs.
  - Overall, BSLs do not show clear, statistically significant effects on EMBI/CDS spreads in annual panel regressions, nor convincing evidence that BSLs promote sound macroeconomic policies.
- Data gaps limit inference; improved BSL data (terms, drawings) would facilitate further analysis, especially for non-Fed and non-China BSLs.

*Italic: Source — IMF staff paper content (wpiea2021210-print-pdf - Appendix Table 1 for current Chinese BSLs).*

### References

### References

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*wpiea2021210-print-pdf - References*

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_Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021210-print-pdf.pdf_