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Managing global liquidity through COVID-19 and beyond

One surprise of the COVID-19-related economic shock has been the lack of a persistent international liquidity crunch. Policymakers have successfully scaled up emergency measures from the 2008 global financial crisis and have introduced temporary debt service relief for poor countries. — However, the next phase of the policy response may be more challenging. In some countries, debt sustainability will need to be confronted. Monetary policy normalization, when it eventually happens, could lead to market volatility and tighter financing constraints. — This briefing proposes international coordination on several fronts to address these and related issues. The first is for the IMF to undertake general allocations of Special Drawing Rights (SDRs) as a source of liquidity. A multilaterally managed trust could ‘recycle’ SDR allocations from countries that don’t need them to those that do. […]