## Strength in Numbers: A Safety Net to Prevent Crises in the Global Economy

_IMF Blog, December 19, 2017_

## Source details

**Canonical URL:** [Strength in Numbers: A Safety Net to Prevent Crises in the Global Economy](https://www.imf.org/en/blogs/articles/2017/12/19/strength-in-numbers-a-safety-net-to-prevent-crises-in-the-global-economy)

## Other formats

- [Markdown version](/en/blogs/articles/2017/12/19/strength-in-numbers-a-safety-net-to-prevent-crises-in-the-global-economy/index.md)
- [Structured JSON version](/en/blogs/articles/2017/12/19/strength-in-numbers-a-safety-net-to-prevent-crises-in-the-global-economy/index.json)
- [Bundle manifest](/en/blogs/articles/2017/12/19/strength-in-numbers-a-safety-net-to-prevent-crises-in-the-global-economy/bundle-manifest.json)

## Bibliographic details
- Authors: The Editors
- Published: December 19, 2017

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### Insurance against crises: purpose of the global financial safety net
- The global financial safety net should help countries in three ways:
  - provide insurance to help prevent crises;
  - supply financing to countries if crises materialize; and
  - provide incentives for countries to adopt the right policies.

### Four main layers of the safety net
- countries’ own reserves;
- bilateral swap arrangements between two countries;
- regional financing arrangements; and
- the IMF.

### Expansion of the safety net — key statistics and developments
- Emerging market economies like China, India, and Brazil now account for 60 percent of global GDP.
- Since 2000, global reserves have increased from around $2 trillion to $11 trillion.
- At the IMF, quota resources have doubled to about $670 billion, and since the crisis member countries have made available substantial additional borrowed funds that the IMF could use if needed.
- Bilateral swap networks:
  - unlimited permanent swaps among central banks of some major reserve currency–issuing countries; and
  - an extensive network of swaps between China and other countries, worth around $500 billion, to support trade and investment.
- Regional financing arrangements:
  - European Stability Mechanism with a lending capacity of €500 billion.
  - The Chiang Mai Initiative multilateralized and funding doubled to $240 billion.
  - The BRICs multilateral Contingent Reserve Arrangement worth $100 billion.

### Diagnosed gaps and shortcomings (2016 IMF analysis)
- Coverage is uneven, with many countries, including key emerging markets, lacking adequate access to funding.
- Financing can be uncertain for countries needing to tap newly expanded layers that have yet to be drawn upon.
- Most layers lack adequate conditions for borrowing, which can weaken the incentives for countries to adopt strong policies.
- Some layers can be financially or politically costly for borrowing countries, or for the global community as a whole, notably in the case of excessive self-insurance through reserves.

### IMF reforms, tools, and collaborative work
- The IMF has been improving its lending toolkit, including developing a proposal for a new short-term liquidity swap that could serve as a blueprint for such a facility in the future, if and when there is sufficient support.
- The IMF updated the rule book for its Flexible Credit Line, and the Precautionary and Liquidity Line, to make the process for countries to qualify more predictable and transparent.
- Rolled out a new Policy Coordination Instrument to help countries unlock financing from different layers of the safety net, particularly regional financial arrangements, and demonstrate their commitment to reform.
  - The first Policy Coordination Instrument was approved for Seychelles on December 13.
- Published a paper on improving collaboration with regional financial arrangements, setting out principles and a framework for engagement.
- Participated in a test-run with the Chiang Mai Initiative Multilateralization, identifying possible refinements to help smooth co-lending.

### Strategic implications and outlook
- The global economy’s rapid evolution and financial innovation require staying agile and building a better safety net that keeps its many strands closely connected, coordinated, and focused on countries’ needs.
- The IMF continually learns, fine-tunes, and upgrades how it can help countries as part of strengthening global economic stability.

*Source: Strength in Numbers: A Safety Net to Prevent Crises in the Global Economy (IMF).*

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## Content in this bundle

- **Adequacy of the Global Financial Safety Net**
  - [Adequacy of the Global Financial Safety Net (Markdown version)](/external/np/pp/eng/2016/031016.pdf.md){rel="alternate" type="text/markdown"}
  - [Adequacy of the Global Financial Safety Net (PDF)](/external/np/pp/eng/2016/031016.pdf){rel="external" type="application/pdf"}

---

## References

- [global economic stability](https://www.imf.org/en/About/Factsheets/Sheets/2016/07/27/15/22/How-the-IMF-Promotes-Global-Economic-Stability)
- [quota resources](http://www.imf.org/en/About/Factsheets/Sheets/2016/07/14/12/21/IMF-Quotas)
- [https://www.imf.org/wp-content/uploads/2017/12/copy-eng-dec-15-draft-gfsn-evolution-4.jpg](https://www.imf.org/wp-content/uploads/2017/12/copy-eng-dec-15-draft-gfsn-evolution-4.jpg)
- [proposal for a new short-term liquidity swap](http://www.imf.org/en/Publications/Policy-Papers/Issues/2017/12/19/pp121917-AdequacyOfTheGFSN)
- [updated the rule book](http://www.imf.org/en/Publications/Policy-Papers/Issues/2017/12/19/pp121917-adequacyofgfsn-revisedproposals)
- [Flexible Credit Line](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/40/Flexible-Credit-Line)
- [Precautionary and Liquidity Line](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/45/Precautionary-and-Liquidity-Line)
- [Policy Coordination Instrument](https://www.imf.org/en/About/Factsheets/Sheets/2017/07/25/policy-coordination-instrument)
- [Seychelles](http://www.imf.org/en/News/Articles/2017/12/13/pr17492-imf-executive-board-approves-three-year-policy-coordination-instrument-for-seychelles)
- [a paper](https://www.imf.org/en/Publications/Policy-Papers/Issues/2017/07/31/pp073117-collaboration-between-regional-financing-arrangements-and-the-imf)

_Source: https://www.imf.org/en/blogs/articles/2017/12/19/strength-in-numbers-a-safety-net-to-prevent-crises-in-the-global-economy_