Designing a Global Financial Safety Net

Graham Bird

Published: December 2018

It often is neither possible nor sensible to immediately correct the underlying macroeconomic disequilibria that a financial and economic crisis reveals. To cushion the process of adjustment a global financial safety net is needed: owned reserves, regional financing and borrowing from the International Monetary Fund. Since the Asian crisis of 1997/98 there has been an accumulation of owned reserves amongst emerging economies as a form of self-insurance, along with the development of regional financing arrangements. There are advantages and disadvantages of the various components of all these arrangements and reform needs to take these into account.