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Global Financial Architecture and the COVID Crisis

After every major economic crisis, the global financial architecture changes markedly. The COVID-19 crisis will not be an exception. The current expert discussions are largely focused on a possible shift towards de-globalisation processes, the strengthening of regionalism and the role of nation-states. Recognising the factors behind these fears, Evgeny Vinokurov, Chief Economist of the Eurasian Fund for Stabilisation and Development, shows the multilevel and complex nature of the current processes in the institutions responsible for the anti-crisis function of the globes financial architecture.

In 2018, the Valdai Club released a report, Living in a Crumbling World, in which it suggested that multilateral cooperation would be phased out. It notes that the crisis of international institutions leads to growing anarchy - each state will rely on itself to solve problems and ensure its survival. In its development, the authors this year have released a new report "Staying Sane in a Crumbling World". It emphasises the thesis that a sovereign state remains the only institution capable of acting in an orderly and efficient manner, a fact which has been confirmed by the current COVID-19 crisis.

I share the high level of concern of the authors of the Valdai reports in the area of ​​my competence - macroeconomic policy and international economic relations. Indeed, the current COVID-19 crisis has been characterised by the fact that the state is forced to make big commitments in supporting the healthcare system and providing social spending. However, governments today have to make difficult economic policy decisions. There is a need to raise new debt in order to close budget and balance of payments gaps, thereby burdening future generations. It should be kept in mind that at the national level, the very first level of self-defence is the countries' own reserves. In poor economies, they are small and cannot be regarded as a sufficient, stabilising source of financing. In addition, as world practice shows, countries are reluctant to spend their reserves, fearing to lose the trust of economic agents. The experience of the COVID crisis confirms this practice. Thus, given the depth of the crisis and the importance of minimising its long-term consequences for the economy, an adequate response at the regional and global level is absolutely necessary.

However, pessimism is not always justified. My conclusion will be that in terms of implementing the anti-crisis functions of the world financial system, the enormous efforts of the 2010s are now bearing fruit, and the complex processes of globalisation / de-globalisation are complex and - at least for now - positive.

Even professional economists tend to know little about this aspect of the global financial system - it is not very public. Meanwhile, the amount of accumulated funds is very large. The functions of anti-crisis support and macroeconomic stabilisation are implemented by the institutions of the Global Financial Safety Net (GFSN). It is customary to refer to their four main elements: countries' own reserves; bilateral swap agreements between countries (central banks); regional financial mechanisms (RFMs); and the IMF (more on architecture and institutions of the GFSN). The good news is that the situational preparedness of the Global Financial Safety Net in general has skyrocketed over the past decade. From a compact two-tier system with national reserves and the IMF, the GFSN has quickly evolved into a multi-tier and much less centralised system with additional elements at the regional and bilateral levels. Currently, the amount of available financing under the GFSN has reached the equivalent of 4% of world GDP. The growth of the regional component of the GFSN in the last decade has amounted to $1.1 trillion due to the new RFMs, and coverage was expanded to 43 countries. In the Eurasian region, one such RFM is the Eurasian Fund for Stabilisation and Development. In 2009-2019, the volume of financial resources provided to them within the framework of budget support and balance of payments support programmes amounted to $5 billion.


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