During a major international financial crisis, central banks can also turn to their own “central bank,” the Bank for International Settlements (BIS), based in Basel, Switzerland. To help solve global financial problems, the BIS often provides temporary funds to shore up failing banking systems around the world — providing short-term financing called bridge loans to member banks, which are paid back as soon as longer-term financing can be arranged.

The BIS also serves as a platform for establishing new rules for regulating the world banking community. In 2007, for example, a new accord was put in place that regulated the amount of capital that banks around the world needed to hold in reserve. This accord, dubbed Basel II, required banks to carefully evaluate the different types of risk found in the many new types of securities available to investors in the global economy. The failure of Merrill Lynch, UBS, and many other banks to properly evaluate the risk of owning large amounts of mortgage-backed securities, for example, led to multibillion-dollar losses and financial ruin for many.

The BIS also serves as a forum, bringing together the worldwide community of central banks to discuss financial globalization and the role of central banks in the converging world economy. With the rise of powerful new members in the global economy — China and India, for example — the number of members in the BIS “club” of central bankers rose sharply during the first years of the 21st century, going from thirty-six to fifty-five in less than a decade.

The International Monetary Fund (IMF) also provides bridge financing to countries in crisis. This IMF-mandated structural adjustment process is often a crucial first step before troubled countries are able to receive funding from other, more long-term sources. Although the IMF is based in Washington, D.C., it receives its funding from a wide variety of member countries around the world. In addition to being able to tap into the hard currency promised by its rich-country members to help the world financial system in times of turmoil, it also has considerable reserves of gold — more than three thousand tons of it at the beginning of the 21st century — that allow it to serve as a counterbalance to the turbulent markets and financially unstable governments during global crises.

The economic medicine prescribed by the IMF for countries in crisis is often painful — and often criticized as being harmful to the poorest members of society.

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