It supported the banking system. It reduced the interest rate on dollar loans. How did it support their currencies?
Not part of their mission, not part of what the Congressional act creating the Fed authorizes them to do.
Congress didn't authorize the Fed to deal with other central banks? Are you sure about that?
Per 12 USC 358, the Fed has the authorization (upon a vote of the FOMC) to open accounts with foreign banks. This does not give them the authority to support foreign currencies (or use swaps and derivatives to support the US dollar through foreign currency transactions) and/or to support foreign banking systems.
They’ve abused their authority in this area before in the 60’s through the early 70’s to support the US dollar, in concert with the US Treasury’s “Exchange Stabilization Fund.” Google (or use your favorite search engine) to go read up on the history of Roosa and Carter bonds.
The Fed’s position is that the enabling legislation doesn’t prohibit the action, and they’ve done these sorts of swaps before with the concurrence of the US Treasury, therefore it’s okey-dokey to do it again.
In the crisis of 2008, the Fed provided massive dollar liquidity to foreign banking systems because they conduct a huge amount of their international settlements in the reserve currency - the USD. These other foreign central banks allowed themselves to get into a position where they were unable to meet liquidity requirements in dollars, and without being able to access huge pools of liquidity, they faced some real sticky problems.
That’s tragic, but it isn’t our problem.
Here’s a paper from the BIS which makes this more clear:
http://www.bis.org/publ/work291.pdf?noframes=1
And here’s the money quote from therein:
“In providing US dollars on a global scale, the Federal Reserve effectively engaged in international lending of last resort. The swap network can be understood as a mechanism by which the Federal Reserve extends loans, collateralised by foreign currencies, to other central banks, which in turn make these funds available through US dollar auctions in their respective jurisdictions.33 This made US dollar liquidity accessible to commercial banks around the world, including those that have no US subsidiaries or insufficient eligible collateral to borrow directly from the Federal Reserve System.”
The Fed is in no way authorized to prop up foreign commercial banks, or foreign commercial banking systems.