Central Banks Casting a Global Financial Safety Net: What Drives the Supply of Bilateral Swaps?

April 26, 2024

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Jakree Koosakul, and Alexei Miksjuk. Central Banks Casting a Global Financial Safety Net: What Drives the Supply of Bilateral Swaps?, (USA: International Monetary Fund, 2024) accessed November 13, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The expansion of bilateral swap arrangements (BSAs) since the Global Financial Crisis has led to a substantial reconfiguration of the Global Financial Safety Net (GFSN). This paper examines the drivers of BSA supply using a novel dataset on all publicly documented BSAs. It finds that countries with well-developed financial markets and institutions and high trade openness are more likely to backstop other economies by establishing BSAs. In addition, their choice of BSA counterparts is driven by strong investment and trade exposures to these countries, with variation in the relative importance of these factors across major BSA providers. The paper shows that geopolitical considerations often affect such decisions, as BSAs are less likely to be established between geopolitically distant countries and more likely between countries in the same regional economic bloc.

Subject: Asset and liability management, Central Banks, Financial crises, Financial markets, Financial safety nets, Financial sector development, Global financial crisis of 2008-2009, International reserves, Liquidity

Keywords: Bilateral swap arrangements, BSA counterpart, BSA source country, BSA supply, Financial safety nets, Financial sector development, Geoeconomic fragmentation, GFSN evolution, Global, Global financial crisis of 2008-2009, Global financial safety net, International reserves, Liquidity, Liquidity provision

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/088
Stock No:

WPIEA2024088
ISBN:

9798400273759
ISSN:

1018-5941

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