Fed strikes currency swap deal with central banks

Wednesday, April 8, 2009 at 1:08 AM Posted by Beijing News


The Federal Reserve Monday announced a currency swap deal with the central banks of Britain, Japan and Switzerland as well as the European Central Bank aimed at helping US financial institutions.

The currencies offered by the four central banks to the Fed under the tieup through October 2009 are equivalent to nearly 290 billion dollars, the Fed said in a statement.

It said that the Bank of England, the European Central Bank ECB, the Federal Reserve, the Bank of Japan, and the Swiss National Bank had entered into swap arrangements that "would enable the provision of foreign currency liquidity by the Federal Reserve to US financial institutions."

"Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap agreements with the relevant central banks," the statement said.

The move came as central banks try to ease credit flows and restore lending in a bid to bolster the financial system critical to recovery of the world economy reeling from the worst downturn since the Great Depression.

Thr swap arrangements reflect similar tie-ups the four foreign central banks have had with the Fed allowing them to borrow dollars since last year, when financial turmoil started wreaking havoc across the globe, stemming from a US home mortgage meltdown.

For example, an arrangement has already allowed the ECB to provide eurozone banks with the dollars they need to fund business operations but this was the first such deal to be oriented towards the United States.

Bank of America economist Gilles Moec told AFP that ensuring ample access to foreign currencies on major markets was always a good idea, but added: "The only question is: why now?"

"It would have made more sense a few months ago when the tension on markets was extreme, possibly triggering a demand for alternatives to the dollar on the US market," Moec added. "This is probably a precautionary move," he concluded.

The Fed statement Monday said central banks continued to work together and were "taking steps as appropriate" to foster stability in global financial markets.

The Federal Open Market Committee, the US central bank's key monetary policy making body, has authorized "new temporary reciprocal currency arrangements" with the four other central banks, the statement said.

If drawn upon, the Fed said, these arrangements would support operations by the central bank to provide liquidity of up to 30 billion pounds 44.5 billion dollars, 80 billion euros 107.2 billion dollars, 10 trillion yen 99.7 billion dollars and 40 billion Swiss francs 35.4 billion dollars.

Aside from the ECB, the Swiss National Bank has conducted auctions of dollar-denominated loans during the 2009 first quarter to help companies meet financing needs.

The Bank of Japan and Bank of England also undertook dollar refinancing bids.

Last month, the Fed said it would seek to pump over one trillion dollars more into the financial system by buying up long-term Treasury bonds and other securities.







AP/Ron Edmonds

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