Member Spotlight

Building Back a Better Financial Safety Net

BU Global Development Policy Center  | Mon, Apr 5, 2021

by Kevin P. Gallagher, Haihong Gao, Edwin Truman, and others


The year 2021 is year two into the most important decade of the century where drastic reductions in carbon dioxide emissions and inequalities in a manner that raises standards of living is paramount to the survival of the world’s people and planet earth itself. Yet, 2020 saw the biggest economic downturn since the Great Depression, and pushed upwards of 124 million people into extreme poverty. 2020 was also the hottest year on record, triggering forest fires, hurricanes, droughts, and other extreme events that accentuated the economic shock the COVID-19 pandemic brought to the world economy.

In this context, many emerging market and developing countries started the decade desperate for liquidity and in fear of default. Even more will face a debt overhang that could take more than a decade to come out from under. This is to be the decade where the world realizes the Sustainable Development Goals and raises the ambitions of the Paris Climate agreement, not one that is characterized by human suffering and economic instability.

The COVID-19 pandemic and associated economic crisis put great stress on the so-called Global Financial Safety Net (GFSN). The GFSN is comprised of Central Bank swap lines from key currency issuing nations, the International Monetary Fund (IMF), regional financing arrangements (RFAs), along with other central bank bilateral swap lines, individual countries’ foreign reserve holdings and capital flow management measures, and a loose ad-hoc system for sovereign debt restructuring.

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