The Global Financial Safety Net Tracker: Lessons for the COVID-19 Crisis from a New Interactive Dataset

In a new policy brief, Kevin P. Gallagher, William N. Kring, Barbara Fritz and Laurissa Mühlich discuss the precarious state of the global financial system and introduce a new interactive database to track short-term crisis finance.

The world economy has gone into a free fall due to the COVID-19 pandemic. At the same time, policy-makers have a broader range of institutions to draw on for international liquidity support than before the global financial crisis 2008/09. Since the 2008/09 crisis, the so-called Global Financial Safety Net (GFSN) of institutions for short-term crisis finance has evolved into an uncoordinated patchwork of global, regional, and bi-lateral sources of support that lacks the resources to adequately prevent and mitigate the kinds of financial instability people are now witnessing.

According to estimates from a new interactive database compiled by the Latin American Institute at Freie Universität Berlin (LAI) and the Global Development Policy Center at Boston University (GDP Center), the financing available from the fledgling GFSN has reached about $3.5 trillion, or 4 percent of global GDP. Today, the International Monetary Fund (IMF) with its approximately $1 trillion lending capacity is by far not the only actor to provide emergency liquidity. Both regional financial arrangements (RFA) and bilateral currency swaps provide significant liquidity. While the level of support is larger than a decade ago, it is still less than one percent of total financial assets.

However, the distribution of availability of the GFSN is highly uneven and unequal, with many countries only having access to a relatively small portion of the GFSN, and some having few options altogether. The authors’ data show that in 2018, about half of the IMF member countries only had access to the IMF. This concerns predominantly Sub-Saharan Africa and most parts of Latin America. In contrast, most countries in Europe, Eurasia, and Southeast Asia have access to powerful regional funds and/or have access to US Federal Reserve or People’s Bank of China swaps. This means these countries are much better equipped to weather sudden stops and liquidity crunches of the kind the world is currently experiencing.

The GFSN should not only increase its loanable funds. There is also an urgent need to coordinate the different elements of the GFSN. The status quo fire power of the GFSN can be used in a fruitful manner only if the diverse actors can begin to cooperate on different levels, while preserving their respective policy autonomy. An important element for this coordination will be a transparent and accessible information structure on the new, complex GFSN. To aid in this effort, LAI and the GDP Center recently launched the Global Financial Safety Net Tracker.