Reforming Financial Safety Nets in Asia and the Pacific | Asian Development Bank

Reforming Financial Safety Nets in Asia and the Pacific

Article | 5 May 2012

Financial crises have shown the need for pools of emergency liquidity -- and the limits of some kinds of lending and borrowing. Learn more about why the world needs to reform its financial safety nets.

  1. Asian economies have around 75% of the world's foreign exchange reserves (excluding gold) and about 23% of global financial assets.
  2. Asia is home to the largest savings pool in the world and is a net lender to industrialized countries.
  3. Asia attracted nearly 80% of all global portfolio investments to emerging market economies in the 2000s.
  4. Global and regional financial safety nets are essential in a world of interlinked financial markets and volatile capital flows.
  5. The 1997/98 financial crisis prompted ASEAN+3 countries to launch the Chiang Mai Initiative in 2000 to provide emergency liquidity.
  6. The initiative began as a bilateral currency swap facility but after the 2008/09 crisis it expanded into a multilateral facility (CMIM).
  7. The CMIM with $120 billion is the world's 2nd largest regional financial facility after the European Financial Stability Facility.
  8. The borrowing limit for individual ASEAN countries under CMIM is $12.5 billion.
  9. Countries have shown an aversion to tapping the Chiang Mai facility because of its IMF-links and borrowing conditions.
  10. The 2008 global crisis highlighted the weakness of traditional IMF lending and the need for a single, global financial safety net.
  11. The G20, which leads coordination of global financial policies, has about 85% of the world's GDP and about 65% of the world's population.
  12. An international lender of last resort facility, managed by IMF, funded by central bank swaps and cofinance could address systemic crises.
  13. IMF is looking at setting up a Global Stabilization Mechanism for use when a crisis breaks out in many countries simultaneously.