Foreign Currency Liquidity Swaps (aka Global Bail Out Plan B) FAQs

Those wondering about the global Fed bailout (this is not the first time, recall How The Federal Reserve Bailed Out The World) can read the FAQ from none other than the source of the global liquidity tsunami itself.

Frequently Asked Questions: Foreign Currency Liquidity Swaps

What is the purpose of the foreign currency liquidity swap lines?

The foreign currency liquidity swap lines are designed to provide the Federal Reserve with the capacity to offer liquidity in foreign currencies to U.S. financial institutions should the Federal Reserve judge that such actions are appropriate.

Which central banks are participating in these arrangements?

The Federal Open Market Committee has authorized arrangements between the Federal Reserve and the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. In addition, these foreign central banks are also establishing bilateral swap arrangements with one another.

Why are these swap lines being implemented?

These swap lines are being implemented as a contingency measure, so that central banks can offer liquidity in foreign currencies if market conditions warrant such actions. These lines provide the Federal Reserve with the same ability to provide foreign currency, should the need arise, as foreign central banks currently have through the existing dollar swap lines with the Federal Reserve to provide dollar liquidity in their jurisdictions.

Why is the Federal Reserve establishing lines for these five currencies and with these five central banks?

These five currencies are used globally and account for the bulk of the foreign currency funding of U.S. financial institutions.

In what manner would foreign currency liquidity be provided?

There has not been a decision to activate the foreign currency liquidity facilities. If the Federal Reserve were to decide to offer liquidity in foreign currencies to U.S. financial institutions, the details of the operations would be determined at that time in light of the prevailing circumstances.

Will activity under the liquidity swap arrangements be disclosed to the public?

Yes, the aggregate swap activity in each currency with foreign central banks will be published weekly. They will be found on the Federal Reserve Bank of New York’s Foreign Exchange Swap Agreement webpage Leaving the Board. In addition, any liquidity-supplying operations in foreign currencies would be subject to the same disclosure requirements as the Federal Reserve’s dollar-based activities.

For how long are the swap arrangements expected to be in place?

These swap arrangements, along with the existing U.S. dollar swap arrangements, have been authorized through February 1, 2013.