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Next Financial Crisis Could Overwhelm World's Defenses, IMF Says

  • Fund paper sounds alarm on fragmentation of global safety net
  • High capital-flow volatility has become the norm, board told
Stacks of U.S. currency are arranged for a photograph in Washington, D.C., U.S., on Thursday, Feb. 6, 2014. A suspension of the federal debt limit, enacted by Congress in October, is scheduled to expire Feb. 7. Treasury Secretary Jacob J. Lew has urged lawmakers to act quickly to raise the cap, saying the government’s ability to meet its obligations will run out before the end of this month.
Photographer: Andrew Harrer/Bloomberg

The global financial safety net has become increasingly fragmented, making it harder to respond to crises in a world roiled by volatile capital flows, International Monetary Fund staffers warned.

Defenses haven’t kept up with the growth of external debt in recent years, the Washington-based fund said in a report released Thursday. As a result, a system-wide shock could overwhelm the world’s crisis resources, which include nations’ foreign-exchange reserves, central-bank swap lines, regional funds such as the euro area’s European Stability Mechanism, and the IMF itself, the lender said.