Emergent international liquidity agreements: central bank cooperation after the global financial crisis

Abstract

Central bank currency swap agreements have proliferated rapidly among emerging market economies (EMEs) since 2008. More than 80 such agreements have been signed in recent years. The accumulation of these agreements has resulted in the emergence of a new $1 trillion liquidity system by 2015. What explains the rapid proliferation of these agreements? What are the political and economic implications of the liquidity network for the international monetary system and the global financial architecture? I specify two key consequences of the global financial crisis and its aftermath that have led EME central banks to seek out swap agreements: volatile international capital flows and a recognition of the risks of dollar dependence in trade. I conclude that these liquidity agreements are unlikely to induce much change in the international monetary system. However, the system is transforming the global financial architecture through the creation of large liquidity lines for systemically important EMEs.