Avoiding the next liquidity crunch: how the G20 must support monetary cooperation to increase resilience to crisis

Who will be the lender of last resort in the next financial crisis? Seven years and nine G20 summits on from the 2008 crisis, we still do not know the answer to this critical question. In the current institutional context, the best hope for more effective international cooperation on this question lies in reforming the International Monetary Fund (IMF)’s SDR (Special Drawing Rights) Department. Yet political challenges have impeded such reforms. 

Therefore, a second-best option is to replicate the institutional design of the SDR Department in an alternative institution. The main political goal is to establish a truly multilateral hub for facilitating currency swaps. The Group of 20 (G20) has the capability and legitimacy to drive forward this reform agenda, but of late attention has waned. The G20 must urgently refocus its energy on monetary and financial policy coordination, before the next crisis hits. 

This policy brief sets out clear recommendations for what reforms are needed to create a monetary system to respond to a global liquidity crisis, and explains why the G20 is the key actor to deliver this progress. During the current Turkish and the next Chinese presidencies of the G20, the group has a critical opportunity to promote a stronger international monetary system.