Regionally, we now have a number of financing arrangements, including the Chiang Mai initiative in Asia (established in 2000), the European Stability Mechanism (established in 2012), the Latin American Reserve Fund (established in 1991), the Arab Monetary Fund (established in 1976) and, most recently, the BRICS development bank (established in 2014)). Regional facilities now total around $ trillion. In addition, during the course of the crisis, bilateral foreign currency swap lines were agreed between around 14 central banks, in both advanced and emerging market countries. Although these swap lines were temporary, in October 2013 they were replaced by a set of permanent, and potentially unlimited, swap lines among a group of advanced economy central banks: the US, Canada, the UK, the euro-area, Switzerland and Japan. These four developments, in combination, are likely to have increased significantly the potential pool of liquidity insurance available to the global financial system in dealing with external financing shocks. The question is whether this degree of insurance has kept pace with the accompanying rising tide of global capital market integration. One metric for that is found by scaling countries’ foreign exchange reserves by a measure of financial globalisation – for example, total external assets (Chart 15). Despite the rapid rise in reserves, its ratio to external asset stocks has actually fallen since 1980, from 10% to around 8%. Second, official reserves have risen unevenly across countries: the degree of concentration in reserves has increased threefold since 2000.
Table 2 suggests, furthermore, that these flows have become increasingly correlated over the past decade. But it is not just cross-border claims which are cyclical and correlated across countries. Chart 20 plots the cycle in total credit across countries, while Table 3 looks at the degree of crosscountry correlation in total credit provision. They suggest total credit also follows a global cycle which has strengthened over time. On this evidence, the credit cycle is as much international as domestic. If credit cycles are global in nature, there may in future be a case for national macroprudential policies leaning explicitly against these global factors. This would help curb the global credit cycle at source. It would take international macro-prudential policy co-ordination to the next level. While not without operational problems, this is much more likely to be a practical policy option than co-ordinating national monetary policies. A second macro-prudential policy avenue for the future concerns the non-bank sector. For example, the pattern of correlations in Chart 18 is consistent with asset managers playing an increasingly important role in driving financial markets. Yet macro-prudential policies have, to date, focussed on banking sector-specific measures operating at a national level. The next phase of macro-prudential policy may see its focus shift in two important ways: towards measures targeted at the non-bank, as well as banking, sector and towards measures targeted at particular markets, as well as particular countries.