U.S. Federal Reserves Collaborates With Five Global Central Banks to Enhance US Dollar Liquidity

The U.S. Federal Reserve has announceda collaboration with five global central banks to ensure the availability of U.S. dollars in light of recent banking failures in both the United States and Europe. This was made known in an announcement by the agency on March 19, 2023.

Coordinated central bank action to enhance the provision of U.S. dollar liquidity: https://t.co/Qs4cYY8BFO

— Federal Reserve (@federalreserve) March 19, 2023

The U.S. Fed partnered with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, and Swiss National Bank to coordinate and improve the provision of liquidity via standing U.S. dollar swap line arrangements.

The use of swap lines as an emergency measure was established during the global financial crisis of 2007-2008 and the COVID-19 pandemic in 2020. These swap lines increased dollar funding in challenging economic circumstances and enhanced liquidity in financial markets.

According to the U.S. Fed:

“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.”

The Swap Line network will begin on March 20 and run at least through April 30.

Although the Federal Reserve did not explicitly refer to the recent banking crisis in its announcement, it claimed that the swap line system was put in place to make credit more accessible to both individuals and businesses.

The network of swap lines among these central banks is a collection of standing facilities that are readily available and act as a vital liquidity backstop to ease pressures in the global funding markets, thereby helping to reduce the impact of such pressures on the availability of credit to households and businesses.

The U.S. banking industry is currently facing a sharp downturn. Two major banks, Silicon Valley Bank and Signature Bank, have reportedly been taken over by the U.S. Federal Deposit Insurance Corporation (FDIC) for the systemic risk they pose to the financial system in the nation.

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