International Studies Quarterly
Moral Hazard in the Global Financial Safety Net: Evidence from Bilateral Swap Agreements
2026-07-06
Globalization has intensified the cross-border transmission of financial risk, placing the Global Financial Safety Net (GFSN) at the core of international economic stability. Since the 2008 Global Financial Crisis, bilateral swap agreements (BSAs) have expanded rapidly, now exceeding International Monetary Fund (IMF) resources and fundamentally reshaping the architecture of global financial co-operation. While observers frequently warn that BSAs may induce moral hazard, systematic theoretical and empirical assessments remain scarce. We develop a network-based argument of moral hazard, arguing that states’ incentives to safeguard depend on their positions within the BSA network. We test theoretical expectations with an original dataset of global BSAs and causal inference techniques. The findings uncover a dual dynamic: central creditor states adopt more prudent positions, expanding their liquidity provision capacity by nearly 20 percentage points to reinforce network stability, whereas peripheral debtor states exhibit significant moral hazard, reducing their self-insurance by roughly 8 percentage points. This study shows that BSAs both diffuse the burden of liquidity provision and reallocate financial risk. In doing so, they generate new systemic vulnerabilities, shift the key currency system away from unilateral reliance on the United States toward burden-sharing among core central banks, and raise emerging challenges for domestic accountability in global financial governance.