Working Paper: NBER ID: w27898
Authors: Michael D. Bordo
Abstract: The COVID-19 pandemic spawned a global liquidity crisis in March 2020. The global liquidity crisis was alleviated by the Federal Reserve and other advanced country central banks cooperating by extending the swap lines they developed in the Global Financial Crisis 2007-2008. Central bank cooperation in 2020 evolved from a two-century history across several monetary regimes that is surveyed in this paper. I find that in monetary regimes which are rules-based cooperation was most successful. International currency swaps developed to manage exchange rates during the Bretton Woods era have evolved into the leading tool to manage international liquidity crises. The swap network can be viewed as a step in the direction of a global financial safety net.
Keywords: monetary policy; central bank cooperation; global financial crises; historical perspective
JEL Codes: E58; F33; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central bank cooperation (E58) | alleviation of liquidity crisis (G33) |
| International currency swaps (F33) | improved management of liquidity crises (G33) |
| Rules-based adherence (F55) | stability of the gold standard (F33) |
| Lack of robust framework (C59) | collapse of the interwar gold exchange standard (F33) |