Fed launches temporary repo facility with foreign central banks

Author: Adam Button | Category: Central Banks

Fed launches another round of swap lines

net investment
The reason the Fed is establishing these swap lines is because they don't want foreign creditors to sell US assets right now. So the swap lines allow them to get US dollars without having to dump Treasuries or other USD-denominated assets.

The US is a huge net debtor with foreigners holding around $39 trillion in US assets compared to Americans owning $28 trillion of foreign assets. About $7 trillion are Treasuries.


"When analyzing who has the upper hand and how this likely plays out, consider that the U.S. is helping its creditors not do disorderly fire-sales of its assets. The U.S. is the net debtor rather than the net creditor in this scenario. It's our stuff that they would sell."
However while these swap lines may prevent a disorderly selloff of US dollar assets, many foreign firms and sovereigns will still need those dollars. So it will simply be drawn out over a longer period (with the Fed buying).

Here is the announcement:

Federal Reserve announces establishment of a temporary FIMA Repo Facility to help support the smooth functioning of financial  markets

The Federal Reserve on Tuesday announced the establishment of a temporary repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) to help support the smooth functioning of financial markets, including the U.S. Treasury market, and thus maintain the supply of credit to U.S. households and businesses. The FIMA Repo Facility will allow FIMA account holders, which consist of central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York, to enter into repurchase agreements with the Federal Reserve. In these transactions, FIMA account holders temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market. It should also serve, along with the U.S. dollar liquidity swap lines the Federal Reserve has established with other central banks, to help ease strains in global U.S. dollar funding markets.

The Federal Reserve provides U.S. dollar-denominated banking services to FIMA account holders in support of Federal Reserve objectives and in recognition of the U.S. dollar's predominant role as an international currency. The FIMA Repo Facility, which adds to the range of services the Federal Reserve provides, will be available beginning April 6 and will continue for at least 6 months.


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