The Global Financial Safety Net—A Stocktaking

The Global Financial Safety Net (GFSN) comprises international reserves, bilateral swap arrangements, regional financing arrangements, and the International Monetary Fund. It offers financing when crises occur and complements countries’ own policy responses in cushioning the impact of shocks. The GFSN performed reasonably well during major crises like the Global Financial Crisis and the Covid-19 pandemic, supporting financial stability and preventing broader disruptions. However, it did not need to bear the full brunt of these crises thanks to extraordinary policy actions of major economies that generated significant spillovers and reduced demand for GFSN resources. Experience across GFSN layers has been mixed. International reserves are the primary shock absorber, but reserve adequacy is highly uneven. Bilateral swap arrangements have prevented disruptions of market funding in key currencies, limiting global contagion. Yet, they are less proven for balance of payments support, and many lack transparency. Regional Financing Arrangements offer an additional layer of support but remain rarely used (except during the euro area crisis) and unevenly distributed across regions. The IMF plays a central role in the GFSN, offering the widest form of international risk sharing thanks to near-universal membership and helping prevent crises through macroeconomic surveillance. Overall, the GFSN remains multilayered and, despite its large size, coverage is uneven, with many low-income countries and emerging economies lacking sufficient access. The rapidly evolving global context marked by more frequent shocks, limited policy buffers, and transformative trends, could strain the GFSN. Strengthening the GFSN requires addressing uneven access, including by rebuilding reserves where needed; improving predictability by making access more reliable; enhancing crisis preparedness by incentivizing sound policies, and fostering better coordination across GFSN layers.