Global Financial Safety Net—A Lifeline for an Uncertain World

IMF Blog, November 30, 2021

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The global financial safety net is a set of institutions and mechanisms that provide insurance against crises and financing to mitigate their impact.
It has four main layers: countries’ own international reserves; bilateral swap arrangements whereby central banks exchange currencies to provide liquidity to financial markets; regional financial arrangements by which countries pool resources to leverage financing in a crisis; and the IMF.

Since the global financial crisis, the total stock of international reserve holdings more than doubled, reaching about $14 trillion by end-2020.
Other layers of the safety net increased about tenfold, to about $4 trillion.
The increase reflects:
- Expansion of bilateral swap arrangements during the global financial crisis and the recent pandemic.
- Establishment of new regional financial arrangements, especially in Europe (e.g., the European Stability Mechanism) and in South East Asia (the Chiang Mai Initiative Multilateralization).
- The IMF more than doubled available resources in the aftermath of the global financial crisis.

The reinforced insurance helped effectively cushion the shock during the first year of the COVID-19 crisis.
Increased bilateral swap arrangements, primarily the US Federal Reserve swaps, provided prompt liquidity support, helping to stabilize the global financial markets and capital flows to emerging market economies.
Financing from the regional financing arrangements remained low, as demand was contained by supportive macroeconomic policies in advanced economies, and timely financing from other global financial safety net sources.
The IMF remained the linchpin of the safety net, approving debt service relief and providing financial assistance to an unprecedented number of countries, including low-income and emerging market economies that did not benefit from bilateral or regional arrangements.

As countries continue to grapple with the fallout from the pandemic and face increased risks of tighter financial conditions, the continued use of the global financial safety net will likely be needed until the crisis is over.

Source: Global Financial Safety Net—A Lifeline for an Uncertain World, Alina Iancu, Seunghwan Kim, Alexei Miksjuk, November 30, 2021.

Box 1. GFSN Layers
- Box 1. GFSN Layers (Markdown version)
- Box 1. GFSN Layers (PDF)