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Safety for Whom? The Scattered Global Financial Safety Net and the Role of Regional Financial Arrangements

Laurissa Mühlich () and Barbara Fritz ()
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Laurissa Mühlich: Institute for Latin American Studies and the School of Business & Economics of the Freie Universität Berlin
Barbara Fritz: Institute for Latin American Studies and the School of Business & Economics of the Freie Universität Berlin

Open Economies Review, 2018, vol. 29, issue 5, 981-1001

Abstract: Abstract The global financial safety net has undergone fundamental changes since the global financial crisis. The IMF introduced new facilities at 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 RFAs. We create 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 how their respective volume, timeliness, and policy conditionality affected their use. We find today’s global financial safety net to be not a global but a geographically and structurally scattered net with unequal access for three different groups of countries. Small countries can draw on their RFA. Only few countries can count on a bilateral swap line. The majority of the countries in our sample do not have several options to choose from. They have the IMF as their only source. We find that volume alone does not explain why countries choose a certain source of emergency liquidity. Even if “the big new” voluminous swap arrangements replaced RFAs in some cases, we find a complex pattern of complementary and substitutive use of the regional and other elements of the global safety net.

Keywords: Global financial system; Global financial safety net; Regional financial arrangements; Financial crisis; Liquidity provision (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:openec:v:29:y:2018:i:5:d:10.1007_s11079-018-9495-y