Expanding the Global Financial Safety Net

In a new policy brief, Kevin P. Gallagher, Director of the Global Development Policy Center, and William N. Kring, Assistant Director, together with Haihong Gao, Ulrich Volz, and José Antonio Ocampo discuss the shortcomings of the current global financial safety net. After outlining the dysfunctions of the current financial system, the authors propose a set of reforms.

Financial stability is a prerequisite for achieving the Sustainable Development Goals (SDGs) and commitments under the Paris Climate Agreement. A value-driven and rules-based Global Financial Safety Net (GFSN) that fosters cooperative policy sovereignty toward these goals needs to be at the center of Group of Twenty (G20) policymaking. The G20 has long supported “further efforts to strengthen the [GFSN] and promote a resilient international monetary and financial system, including by reconsidering elements of the IMF’s lending toolkit and deepening collaboration with regional financing arrangements (RFAs).” To this end, the authors recommend urgent action. The G20 must expand and bolster the GFSN’s geographic coverage as well as the range of instruments to identify, prevent, and mitigate crises. It must expand the thematic coverage of the GFSN to monitor volatile capital flows, pandemics, and climate shocks. A stepwise, quota-based increase in resources for the International Monetary Fund (IMF), an expansion in the level and role of Special Drawing Rights (SDR), and new resources for new and existing RFAs will be critical to this expansion. This renewed multilateralism will enable nation-states to pursue their own strategies to meet these broader goals in a globally coordinated matter.