RFAs are largely untested and swap lines may only be used in very specific situations between specific countries. There is no evidence the formal GFSN deters countries from holding reserves. 19 The extra reserves that EMEs have accumulated over the past two decades have reduced the sensitivity of Capital Flows-at-Risk to Push factors by almost 50%. But this extra insurance has come at a domestic high cost, both to finance and because reserves can crowd out domestic investment.20 And it has global externalities, with the vast accumulation of safe assets distorting yields, building global imbalances and increasing the risks of a global liquidity trap.21 Chart 14: Components of the global financial safety net as a per cent of global external liabilities 12 10  Per cent of global external liabilities  IMF Permanent (rhs)  IMF Temporary (rhs)  RFAs (rhs)  FX Reserves (lhs)  Per cent of global external liabilities  8  3  2  6 4  1  2 0  0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016  Sources: IMF, central bank websites, RFAs, Lane Milessi-Ferretti (2007) External Wealth of Nations dataset and Bank calculations. Notes: FX reserves exclude gold. 19  See Scheubel, B, L Stracca and C Tille (2019), Taming the global financial cycle: What role for the global financial safety net?, Journal of International Money and Finance 94: 160–182.
Comparing the present situation with that a year ago, there has evidently been notable progress in restoring confidence in the Spanish economy. The growing normalisation of external funding flows and the fall in the sovereign risk premium clearly illustrate this. However, the pass-through of this improvement in overall financing conditions is still proving limited, whereby the financial restrictions continue to weigh down most significantly on private-sector spending and investment decisions in Spain. All told, the slowing trend in inflation has continued over recent quarters and further headway has been made in correcting the main imbalances. The increases in the annual rate of the consumer price index in the first half of this year have slackened as the effects of the tax rises and increases in administered prices from July to September last year have been stripped out. According to the flash estimate, the CPI rate stood at 0.3% in September. It is therefore likely that its annual rate of change will stand below 1% in December. Running such a moderate inflation rate evidently contributes to alleviating the impact of weak incomes on households’ and firms’ purchasing capacity. The legislation on the deindexation of the economy will be a valuable instrument for entrenching this trajectory. But the clearest example of the marked re-balancing the Spanish economy is undergoing is the elimination of the external deficit.