SEOUL (MNI) – The Federal Reserve’s recent move to reopen
currency swap lines with other global central banks was a “prudent”
measure designed to mitigate dollar funding pressure in the face of
rising sovereign credit risk, Charles Evans, President of the Federal
Reserve Bank of Chicago, said Tuesday.
“The Federal Reserve recently reopened these swap lines. This step
seems prudent as the dramatic repricing of the sovereign credit risk of
some peripheral European countries has the potential to create dollar
funding pressures in world markets,” he told a Bank of Korea conference
here.
The Fed reestablished swap lines with the European Central Bank and
other global central banks on May 10 as part of a package of measures
designed to head off the risks of contagion stemming from the crisis of
confidence in Greece’s sovereign health. The lines had originally been
opened during the chaos of 2007-2008.
Evans also touched on the Fed’s asset purchase program, citing
studies showing that they decreased premiums on long-term assets by 30
to 100 basis points but saying the “jury is out” on the degree of
accommodation they provided.
“I suspect the larger beneficial effects were nonlinear,” he said.
He told reporters on Monday that he believes the Fed will first
sterilize excess reserves and then turn to asset sales when it
eventually tightens monetary policy.
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