United States Fed ex­tends cur­rency swaps with for­eign banks

The Pak Banker - - Company & Boss News -

WASHINGTON: The US Fed­eral Re­serve will ex­tend its pro­gram to make dol­lars avail­able to cen­tral banks around the world through next sum­mer, re­flect­ing con­tin­ued strains in Euro­pean fi­nan­cial mar­kets that could en­dan­ger the world econ­omy in 2011.

The an­nounce­ment by the Fed came amid signs that the fis­cal cri­sis that has roiled Europe for much of the year con­tin­ues apace, de­spite a se­ries of ef­forts by the Euro­pean Union, In­ter­na­tional Mon­e­tary Fund and Euro­pean Cen­tral Bank to staunch it.

The Fed ini­tially cre­ated swap lines with the Euro­pean Cen­tral Bank, Bank of Eng­land, and other coun­ter­parts in ad­vanced na­tions around the world dur­ing the thick of the 2007-2009 fi­nan­cial cri­sis, then res­ur­rected the pro­gram in May 2010 when fi­nan­cial strains ap­peared in Europe. The lines were sched­uled to ex­pire Jan. 31, but now will be ex­tended through at least Aug. 1.

Es­sen­tially, the Fed swaps dol­lars for eu­ros, pounds or other cur­ren­cies with a for­eign cen­tral bank, which in turn can lend dol­lars to banks in its nation that are ex­pe­ri­enc­ing a short­age of dol­lars.

The el­i­gi­ble for­eign cen­tral banks, which also in­clude those in Canada, Switzer­land and Ja­pan, pro­tect the Fed against any losses.

The pro­gram has been lit­tle-used this year, with only $60 mil­lion in out­stand­ing lend­ing last week (by con­trast, a year ear­lier, the fig­ure had been $14.4 bil­lion).

Though the swap lines are lit­tle used now, the de­ci­sion to keep them in place car­ries some sym­bolic weight, show­ing that the Fed stands be­hind ef­forts to ad­dress the Euro­pean cri­sis, which Fed of­fi­cials fear could af­fect the U.S. econ­omy if it spi­rals out of con­trol. -PB News

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.