Global Financial Safety Nets: Where Do We Go from Here?

Abstract

From an emerging markets perspective, the global safety net remains full of holes despite recent stitches during the crisis. This paper proposes an effective and workable international lender-of-last-resort (ILLR) for systemic liquidity crises based on (i) an automatic trigger to access the facility; (ii) unilateral country pre-qualification to the facility during IMF Article IV consultations; and (iii) liquidity funded by the world's ‘issuers of last resort’. These principles support a reliable and broad-based ILLR without the carrying costs associated with inefficient reserve hoarding; one that would actually work as an effective preventive facility with minimal room for moral hazard.