Global Club Goods and the Fragmented Global Financial Safety Net

Abstract

AbstractIt is generally regarded that a robust global financial safety net is a global public good. Yet public goods models that explain the existence of the global financial safety net cannot also explain why it is highly fragmented and provisioned so inequitably. This study shows that the global financial safety net's existence, fragmentation, and inequitable coverage can be explained by modeling the global financial safety net as a global club good. The primary finding of the model is that when a state has a monopoly on the provision of a non-rival and excludable good (i.e., a club good), separate multilateral and bilateral club governance structures emerge, each with a unique structure and cost. Brief case studies of the global financial safety net provisioned by the International Monetary Fund, the Federal Reserve, and the Bank for International Settlements support the model.