The US Federal Reserve has announced a coordinated effort with five other central banks aimed at keeping the US dollar fluid amid a series of bank failures in the US and Europe..
The Federal Reserve’s March 19 announcement comes just hours after Swiss bank Credit Suisse was acquired by UBS for $3.25 billion. as part of an emergency plan directed by the Swiss authorities to preserve the financial stability of the country.
According to the Federal Reserve Board, the plan to shore up liquidity conditions will be carried out through “swap lines”, an agreement between two central banks to exchange currencies.
Swap lines previously served the Federal Reserve as an emergency measure in the 2007-2008 global financial crisis and in the 2020 response to the COVID-19 pandemic. The swap lines initiated by the Federal Reserve are designed to improve liquidity in the dollar funding markets during difficult economic conditions..
Coordinated central bank action to enhance the provision of US dollar liquidity: https://t.co/Qs4cYY8BFO
—Federal Reserve (@federalreserve) March 19, 2023
Coordinated action by central banks to improve the provision of liquidity in US dollars: https://t.co/Qs4cYY8BFO
“To improve the effectiveness of swap lines in providing funding in US dollars, Central banks that currently offer dollar trading have agreed to increase the frequency of seven-day trading from weekly to daily,” the Fed said in a statement..
The swap line network 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 continue until at least April 30..
The move also comes amid a negative outlook for the US banking system.due to the bankruptcy of Silvergate Bank and Silicon Valley Bank and the takeover of Signature Bank by the Financial Services District of New York.
The Federal Reserve, however, did not make direct reference to the recent banking crisis in its statement.. Instead, he explained that they implemented the swap line agreement to strengthen the supply of credit to households and companies:
“The network of swap lines between these central banks is a set of standing facilities available and serves as an important liquidity backstop to ease stress in global funding markets, thus helping to mitigate the effects of such stress on the supply of credit. to homes and businesses.
The Fed’s latest announcement has sparked a debate over whether the deal constitutes quantitative easing.
The American Economist Danielle DiMartino Booth argues that the deal is unrelated to QE or inflation and does not “loosen” financial conditions:
MISINFORMATION PREVENTION MOMENT
Swap lines do NOT constitute loosening financial conditions.
One more example: You’re a doctor. A patient is having cardiac arrest. You can SEE the paddles to revive him/her from her but you can’t REACH the paddles. These swap lines HAND you the paddles. https://t.co/RXOPiBmsif
—Danielle DiMartino Booth (@DiMartinoBooth) March 19, 2023
TIME TO PREVENT DISINFORMATION
Swap lines are NOT an easing of financial conditions.
One more example: You are a doctor. A patient goes into cardiac arrest. You can SEE the paddles to revive him but you cannot REACH the paddles. These exchange lines DELIVERY the blades to you. https://t.co/RXOPiBmsif
The Federal Reserve works to prevent the banking crisis from escalating.
Last week, the Federal Reserve established a $25 billion funding program to ensure banks have enough liquidity to meet customer needs. amid difficult market conditions.
A recent analysis by various economists on the collapse of SVB concluded that up to 186 US banks are at risk of insolvency:
“Even if only half of uninsured depositors decide to withdraw, nearly 190 banks are at potential risk of hurting insured depositors, with $300 billion of insured deposits potentially at risk.”
Cointelegraph reached out to the Federal Reserve for comment but did not receive an immediate response.
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