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Safety for whom? The scattered global financial safety net and the role of regional financial arrangements

[working paper]

Mühlich, Laurissa; Fritz, Barbara

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Corporate Editor Freie Universität Berlin, FB Politik- und Sozialwissenschaften, Otto-Suhr-Institut für Politikwissenschaft Kolleg-Forschergruppe "The Transformative Power of Europe"
Abstract The global financial safety net provides backstop during times of financial crises. Its elements underwent fundamental changes since the global financial crisis. The International Monetary Fund (IMF) introduced new facilities on the global level, new regional financial arrangements (RFAs) were created, and bilateral swap agreements emerged as a new element. In this paper, we ask how these changes influence the use of the different safety net options, and what role RFAs have in the safety net today. We created a database with all the cases in which a RFA member drew on one of the elements of the global safety net. This allows us to analyze which other options the country had at hand, and to examine their use along the institutional design in terms of timeliness, volume, and policy conditionality. We find today's global financial safety net to be not a global, but a geographically and structurally scattered net. RFAs make the safety net safer only for small member countries. Just few countries can count on a bilateral swap line, their selection being subject to the discretion of the swap partner. Thus, a large number of countries fall through important knots of the safety net and have the IMF as their only option.
Keywords financial crisis; IMF; financial market; cooperation; liquidity; solvency; currency; monetary policy; stability; developing country; newly industrializing countries
Classification Economic Policy
Free Keywords Regional Financial Arrangements; Financial Safety; Bilateral Swaps; FLAR; CMIM; AMF; EFSD
Document language English
Publication Year 2016
City Berlin
Page/Pages 33 p.
Series KFG Working Paper Series, 75
ISSN 1868-7601
Status Primary Publication; peer reviewed
Licence Deposit Licence - No Redistribution, No Modifications