Posted on 04/06/2009 9:10:57 AM PDT by lainie
Central banks in the United States, Europe, Britain and Japan announced an agreement on Monday that could provide some $287 billion in liquidity to the Federal Reserve, in the form of currency swaps.
Under the arrangement, the Fed could draw on these lines to provide more liquidity to financial institutions, this time in the form of foreign currency.
The announcement was the latest in a series of coordinated efforts between the Federal Reserve and other central banks to try to unlock credit markets, restore normal lending and raise confidence in the financial system.
“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 Federal Reserve said in a statement. “Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets.”
The Bank of England agreed to provide £30 billion in currency swaps, while the European Central Bank said it would provide 80 billion euros. The Swiss National Bank offered 40 billion in Swiss francs while the Bank of Japan said it would provide 10 trillion yen.
(Excerpt) Read more at nytimes.com ...
Really. Could you say that?
Every day there are new schemes and plans to contemplate.
ping
Interesting. I wouldn’t have thought of “commercial liquidity of foreign exchange” as the reason for doing big swaps by central banks with other central banks (if these were commercial banks or securities houses, then I could see how such liquidity would make sense), but that’s what the article seems to be suggesting.
amazing.
we’re all one world comrades now.
si.
I honestly can’t even get my head around it, to be honest
Once trillions on CDS's goes sour on strip malls and large malls going bankrupt, the US taxpayer with be poked again for more bailout tax money.
I can't either.
I keep hearing that about shopping malls. Are they thinking they’ll become ghostmalls across America or what? Or just sold & remodeled into ...I don’t know what..
Federal Reserve Press ReleaseRelease Date: April 6, 2009
For release at 10:00 a.m. EDTThe Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank announce swap arrangements
The Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing swap arrangements that would enable the provision of foreign currency liquidity by the Federal Reserve to U.S. 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. Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets.
(That's from the Fed's website http://www.federalreserve.gov/newsevents/press/monetary/20090406a.htm; thanks to the BOJ for putting that link on their website in an appropriate spot.)
The swaps are there to provide foreign exchange to our financial institutions --- that's very interesting. That means that financial institutions could potentially have a way to get yen or euros without having to go into the markets. I wonder exactly why the Fed is interested in such liquidity?
Why now the currency swap? Unless the Fed wants to dump its excess foreign currencies for dollars so it doesn't have to print up any more new ones unless absolutely necessary.
So the FCBs don’t have to sell Treasuries in exchange for dollars, thus helping hold interest rates down.
It’s an indirect way Bendover has to keep borrowing costs down, which he’s going to need as more and more Ts come up for auction.
That was my first thought, too, nicola.
Another question is why on earth would they sign on for such a scheme? why? what’s in it for England, Japan, Switzerland and “Europe?” (All these stories are back-and-forth on just which central banks are taking part.)
And how common are these “currency swaps” anyway? I see news stories from 2008 talking about other swaps.
The wall street journal’s RealTimeEconomist blog explains it this way (although I’m still trying to read between the lines to see what this means re currency valuations)
http://blogs.wsj.com/economics/2009/04/06/whats-the-fed-up-to-now/
What’s the Fed Up To Now
By Jon Hilsenrath
In a precautionary move, the Federal Reserve, along with the Bank of Japan and three European central banks, expanded a program that allows them to lend out each other’s money to financial institutions in need of foreign currency.
New swap lines with central banks including the Bank of Japan, above, enable the Fed to provide currency liquidity to U.S. financial firms. (Associated Press)
The Fed, Bank of England, European Central Bank, Swiss National Bank and BOJ, announced the Fed will be able to lend pounds, euros, yen and Swiss francs to U.S. institutions with pressing short-term needs for loans in those currencies.
Any time the Fed comes out with a new program, one has to ask: What problem is it trying to solve? Is there another time bomb lurking beneath the scenes it’s trying to defuse?
This is an example of good housekeeping meant to strengthen the plumbing of short-term money markets, rather than emergency management. The new program has been in the works for a few months. A person familiar with the planning said the central banks involved believe the new lines aren’t likely to be tapped in the foreseeable future.
Financial institutions outside the U.S. have been in great need of U.S. dollar funding during the financial crisis, forcing other central banks to turn to the Fed for dollars to lend out abroad. But U.S. financial institutions haven’t faced severe shortages of foreign currency funding that would force them to turn to the Fed for loans in these currencies.
“There is no structural funding imbalance right now,” says Louis Crandall, a money market analyst at Wrightson ICAP LLC.
There are a few reasons why the Fed and other central banks might want to put these swap lines in place. One is that during some holidays, when U.S. markets are closed but others aren’t, U.S. institutions operating abroad could face temporary funding needs.
Another is simple to make existing arrangements more reciprocal. In the past few months, the Fed has lent out hundreds of billions of dollars to other central banks, which those central banks have in turn lent to financial institutions in need of dollars. The new arrangement more formally allows the money to flow the other way if needed.
“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 Fed said.
The new swap lines allow the Fed to borrow up to 80 billion euros, 10 trillion yen, 30 billion pounds sterling and 40 billion Swiss francs to provide to U.S. banks if needed.
There is some benefit to both parties in a currency swap. If BOE holds dollars it can swap the Fed for Pounds. The Fed gets dollars (with a claim on the Pounds) and the BOE gets Pounds (with a claim on the dollars). Neither will have to print new currency but both have the assurance of reconversion back into the original holdings.
The global flea market and swap meet. I’ll swap my junky currency and jukny Gov’t securities for your junky currency and junky Gov’t securities
Is this the Special Drawing Rights fund that was mentioned last week? Anyone know?
I am not sure that it's all correct (some of it definitely seems at best specious, especially the bit about U.S. operations abroad needing access to FX via the Fed), but I am glad to find that I am not the only person who found these operations a bit puzzling.
Of course it is all done on computer bits now, so no actual money need be printed.
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