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The US Federal Reserve announced a coordinated effort with five other central banks to keep the US dollar flowing amid a string of bank failures in the US and Europe.
March 19th announcement The announcement from the Fed comes just hours after Swiss-based bank Credit Suisse was acquired by UBS for $3.25 billion as part of an emergency plan led by Swiss authorities to maintain financial stability in Switzerland. later.
According to the Federal Reserve, the plan to strengthen liquidity conditions will be implemented through “swap lines.” This is an agreement between his two central banks to exchange currencies.
Swap lines previously functioned as a measure similar to the Federal Reserve’s emergency. 2007-2008 global financial crisis and 2020 Responding to the COVID-19 Pandemic. The swap lines initiated by the Federal Reserve are designed to improve liquidity in dollar funding markets during difficult economic times.
Coordinated Central Bank Actions to Strengthen USD Liquidity Offerings: https://t.co/Qs4cYY8BFO
— Federal Reserve (@federalreserve) March 19, 2023
“To improve the effectiveness of swap lines in U.S. dollar funding, central banks that currently offer U.S. dollar operations will reduce the frequency of seven-day operations from weekly to weekly,” the Federal Reserve said in a statement. We agreed to increase it by the day,” he said.
Our swap line network includes the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank. It begins on March 20th and lasts until at least April 30th.
The move comes amid a negative outlook for the U.S. banking system, with Silvergate Bank and Silicon Valley Bank collapsing and the New York Financial Services District taking over as a signatory bank.
However, the Federal Reserve did not directly mention the recent banking crisis in its statement. Instead, it said it implemented swap-line agreements to boost the supply of credit to households and businesses.
“These networks of inter-central bank swap lines are a set of available standing facilities that act as an important liquidity backstop to ease tensions in global funding markets, thereby allowing households and It will help mitigate the impact of such strains on the supply of credit to businesses.”
The Fed’s latest announcement has sparked debate over whether the deal constitutes quantitative easing.
US economist Daniel DiMartino Booth argued that the deal had nothing to do with quantitative easing or inflation and would not “easily” financial conditions.
False alarm prevention moment
A swap line does not constitute an easing of financial conditions.
Another example: You are a doctor. The patient is in cardiac arrest. You can see the paddle to revive him/her, but you can’t reach the paddle.These exchange lines pass the paddle. https://t.co/RXOPiBmsif
— Daniel DiMartino Booth (@DiMartinoBooth) March 19, 2023
The Federal Reserve has worked to prevent an escalation of the banking crisis.
Related: The Banking Crisis: What Does It Mean for Cryptocurrencies?
Last week, the Fed launched a $25 billion funding program to ensure banks have sufficient liquidity to meet their customers’ needs in tough market conditions.
A recent analysis by several economists of the SVB collapse found that up to 186 US banks are at risk of bankruptcy.
“Even if only half of the uninsured depositors decided to withdraw, about 190 banks would still be at potential risk of harming their insured depositors, worth $300 billion. of insured deposits could be at risk.”
Cointelegraph did not immediately respond to a request for comment from the Federal Reserve Board.
