The Reactivation of US Federal Reserve Swap Lines

Well here's some humbling news from those of us who believe the euro was becoming an alternative currency to the US dollar. At the start of the year, I wrote on how the swap lines that the Federal Reserve had opened to improve dollar liquidity as the US financial crisis was underway were due to be shut down. More precisely, they were opened on 12 December 2008 and closed on 1 February 2010. This closure was little noticed at the time, but it seems that the Americans have been as keen on mitigating the global financial markets' current bout of panic as a still-unattributed 1000 point drop in the Dow Jones Industrial Average occurred last week. When in doubt, blame "the speculators."

No matter; up on the Fed site is a press release detailing how the swap lines have been opened once again to ringfence Euro-troubles:

In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

Federal Reserve Actions

The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.

These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.

In a context perhaps not so far removed from what we are experiencing now, Nicolas van de Walle once wrote about African Economics and the Politics of Permanent Crisis as African countries dealt with structural adjustment programmes--and not always in a positive manner. You can say we have similar politics nowadays, even if the countries undergoing crises and, yes, structural adjustment of their fiscal situations lie not in Africa but at the very heart of the Western world. The more things change...