Fed Expands Dollar Swap Lines With Nine More Central Banks Amid Unprecedented Dollar Short Squeeze

As we reported yesterday, one of the recommendations proposed by repo "god" Zoltan Pozsar to restore dollar liquidity and eliminate funding and market stress, was for the Fed to effectively become banker to the entire world in the form of unlimited, 24/7 swap lines with every central bank, not just the current G7, to wit:

The Fed needs to broaden access to the swap lines to other jurisdictions as dollar funding needs are large in Scandinavia, Southeast Asia, Australia and South America, not just in the G-7.

Well, after an overnight session that saw currencies flash crash across Asia, notably the Aussie...

... and Kiwi...

... demonstrating just how urgently instant dollar access is needed at a time of the biggest dollar margin call in history, the Fed relented, and on Thursday morning the Federal Reserve announced the establishment of temporary U.S. dollar liquidity arrangements (swap lines) with:

  • the Reserve Bank of Australia
  • the Banco Central do Brasil
  • the Danmarks Nationalbank (Denmark)
  • the Bank of Korea
  • the Banco de Mexico
  • the Norges Bank (Norway)
  • the Reserve Bank of New Zealand
  • the Monetary Authority of Singapore
  • and the Sveriges Riksbank (Sweden).

According to the release, "these facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad."

How much dollars will be available? As per the release, the Fed will release up to $60 billion each for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank and $30 billion each for the Danmarks Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand.

Finally, the Fed announced that these U.S. dollar liquidity arrangements will be in place for at least six months.

In kneejerk response, the dollar sold off sharply with the BBDXY sliding from record highs, although the move appears far less than what the Fed may have wanted as the market realizes there is little any central bank can do in a world where virtually every corporation is now facing the risk of bankruptcy in the coming months.

If this turns out to be insufficient, the Fed may have to follow up on Pozsar's other, far more draconian recos, including backstopping virtually every asset.