The Evolving Multi-layered Global Financial Safety Net: Role of Asia

This paper argues that in the aftermath of the global economic crisis, the relatively centralized international monetary architecture set up at the Bretton Woods conference is evolving towards a more decentralized multi-layered global financial safety net (GFSN) comprising (i) the G20 at the apex as an overarching institution (ii) multilateral financial safety nets (MFSNs) established under the auspices of the IMF (iii) bilateral financial safety nets (BFSNs) among central banks, (iv) regional financial safety nets (RFSNs) established in various regions of the world, and (v) national financial safety nets (NFSNs) or reserve accumulation by individual countries. The most significant factor explaining this evolution is the increased incidence of capital account crisis subsequent to the deepening of financial globalization. The paper argues that the evolving GFSN has increased the flexibility of the international monetary architecture and enhanced the voice (weight and influence) of emerging markets on global economic governance to some extent. However, more needs to be done. Also there is the need for institutional and other reforms to prevent and manage a systemic crisis in the future and to protect innocent bystanders. What is the role of Asia and what can Asia do? Keywords: international economic institutions, global economic governance, international monetary architecture, global financial safety net, Bretton Woods, Group of Twenty.