The global financial safety net is a set of institutions and mechanisms that provide insurance against crises and financing to mitigate their impact. It has four main layers: countries’ own international reserves, bilateral swap arrangements, regional financial arrangements, and the IMF. The global financial safety net has expanded significantly in the past decade and its sources have become more diverse. This has helped to effectively cushion the shock during the first year of the COVID-19 crisis. As countries continue to grapple with the fallout from the pandemic and face increased risks of tighter financial conditions, the continued use of the global financial safety net will likely be needed until the crisis is over.
Why is this important? The global financial safety net is important because it helps to prevent financial crises from spreading and becoming more severe. It also provides countries with the resources they need to recover from crises more quickly.
