The Global Financial Safety Net (GFSN), an international scheme to protect the financial system against crises, needs reform if it is to help tackle climate-related shocks, according to this paper from the Global Development Policy Center.
The GFSN is a combination of reserves, central bank swap lines, regional financial arrangements, and the International Monetary Fund (IMF). It exists to provide precautionary insurance against a crisis and to supply liquidity when crises hit.
The paper observes that the system came under great stress due to Covid-19. When the pandemic began, it was estimated that immediate liquidity needs for emerging markets and developing countries would be upwards of US$2.5 trillion. But the GFSN fell short of having the financing needed for these countries.
The report finds that the GFSN toolkit is likely to be inadequate to address future shocks, particularly those resulting from climate change. It makes a number of proposals directed at the International Monetary Fund, G20, regional financing arrangements and national governments, including addressing climate risks in IMF programming.
This page was last updated October 22, 2021
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