Central banks agree to enhance dollar liquidity

Published March 20th, 2023 - 08:21 GMT
Central banks agree to enhance dollar liquidity
Image by Shutterstock
U.S. Federal Reserve and several major central banks agree to boost the flow of U.S. dollars globally.

ALBAWABA - The U.S. Federal Reserve and several major central banks agreed to boost the flow of U.S. dollars globally to keep credit accessible to businesses and households.

The agreement, which goes into effect Monday, was announced late Sunday in a joint statement released by the European Central Bank (ECB).

"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements," the central banks said in a joint statement.

The statement came hours after Swiss authorities arranged an emergency takeover of Credit Suisse by UBS in a historic deal. Credit Suisse is one of the 30 most important global banks. It almost collapsed last week after investor and customer confidence eroded.

That followed the collapse of two top banks in the United States, namely Silicon Valley and Signature, sending jitters across the global market and threatening to make it harder for people to borrow money, CNN reported U.S. Treasury Secretary Janet Yellen.

The ECB statement said to "improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily."

It said the daily operations will begin Monday and will continue through the end of April.

The statement said the network of swap lines "is a set of available standing facilities and serves as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses."

CNN said swap lines are "agreements between two central banks to exchange currencies" and that "they allow a central bank to obtain foreign currency from the central bank that issues it, and distribute it to commercial banks in their country."

"The swap line between U.S. Federal Reserve and the ECB, for example, enables the ECB to receive U.S. dollars in exchange for an equivalent amount of euros," CNN reported. It said the ECB can then distribute the dollars to commercial banks in the 20 countries that use the euro.

You may also like