Currency swap lines have been used during times of crisis in the past, such as the 2008 global financial crisis and the 2020 coronavirus pandemic.
U.S. The Federal Reserve announced a coordinated effort with five other central banks to keep the U.S. dollar in circulation amid several bank crises in the United States and Europe.
The Fed’s March 19 announcement comes hours after UBS acquired Swiss bank Credit Suisse for $3.25 billion as part of an ambitious plan led by Swiss authorities to preserve the country’s financial stability. According to the Federal Reserve Board, plans to strengthen financial conditions will be implemented through the “swap line” – an agreement between two central banks to exchange currency.
The swap line was an emergency measure for the Federal Reserve during the 2007-2008 global financial crisis and the 2020 response to the COVID-19 pandemic. The Federal Reserve’s policy is to increase liquidity in the dollar market during difficult economic times.
“To improve the effectiveness of the swap line providing US dollar funding, the central bank currently providing US dollar performance has agreed to increase the frequency of the seven-day maturity period from weekly to daily,” the Fed said in a statement. The network of swap lines will include the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. It will start on March 20 and run until at least April 30. The move also comes in a negative light for the US banking system, with the collapse of Silvergate Bank and Silicon Valley Bank and the takeover of Signature Bank by New York’s Financial Services District.
However, the Federal Reserve did not specifically mention the recent banking crisis in its statement. Instead, he explained that they created a swap line agreement to promote the provision of credit to households and businesses:
“The network of swap lines between these central banks is composed of many institutions and serves as an important basis to reduce pressure on the global financial market, helping to reduce the effects of the pressure as well as the introduction of family and business credit.”
The Fed’s latest announcement has fueled debate over whether the deal is quantitative easing.
US Economist Danielle DiMartino Booth argued that these deals were not linked to inflation or inflation and did not ease monetary conditions. The Federal Reserve has worked to prevent an increase in the banking crisis.
Last week, the Federal Reserve launched a $25 billion liquidity program to ensure banks have enough liquidity to meet customer needs in tough market conditions. A recent study by several economists on the failure of SVB showed that as many as 186 US banks are at risk of bankruptcy:
“Even if only half of uninsured depositors decide to withdraw, nearly 190 banks could fail for insured depositors, with as much as $300 billion of deposits. risk insurance.”
Cointelegraph contacted the Federal Reserve for comment but did not immediately receive a response.
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