Global central banks, including the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank, have announced a coordinated action to enhance the provision of liquidity via standing U.S. dollar liquidity swap line arrangements.
In order to increase the effectiveness of the swap lines in providing U.S. dollar funding, the central banks have agreed to increase the frequency of seven-day maturity operations from weekly to daily. These daily operations will begin on Monday, March 20, 2023, and will continue until the end of April.
The swap lines among these central banks serve as a crucial liquidity backstop, easing strains in global funding markets and mitigating the effects of such strains on the supply of credit to households and businesses. This move is intended to strengthen the supply of credit to these entities during tough economic conditions.
The Federal Reserve has not directly mentioned the recent banking crisis in its statement. Instead, it highlighted the importance of implementing the swap line agreement to help households and businesses. The central banks’ network of swap lines is a set of available standing facilities and will serve as an essential liquidity backstop to support global financial stability.
Swap lines are agreements between two central banks to exchange currencies. The Federal Reserve has previously used swap lines as an emergency measure in response to the 2007-2008 global financial crisis and the COVID-19 pandemic in 2020. The current move to improve liquidity conditions is a proactive measure to strengthen the supply of credit to households and businesses.
The network of swap lines among these central banks will start on March 20 and continue at least until April 30. This initiative is a significant step towards improving global financial stability and the supply of credit during tough economic conditions.
