Millennium Post

US Fed, ECB, 4 central banks extend currency swap accords indefinitely

Six major central banks said on Thursday that they would make their existing web of currency swap arrangements indefinite as a 'prudent liquidity backstop' in case of future global financial strains, according to agency reports.

The Bank of Japan (BoJ), US Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE) and central banks of Canada and Switzerland will convert their 'temporary bilateral liquidity swap arrangements' into standing arrangements that 'will remain in place until further notice', the reports added.

'The existing temporary swap arrangements have helped to ease strains in financial markets and mitigate their effects on economic conditions,' a coordinated statement from the central banks said. 'The standing arrangements will continue to serve as a prudent liquidity backstop.'

Currency swap lines were first introduced nearly six years ago in response to a global credit crunch that starved banks of liquidity and threatened to gum up the entire financial system.

They were an important part of the policy response to the 2007-2009 financial crisis, keeping a lid on funding costs which had spiralled due to fear over counter-party risk. The arrangements were next due for review in February.

Speaking after the Bank of Japan kept its massive stimulus programme in place, Governor Haruhiko Kuroda said that the structure had helped bring stability to financial markets and the move to extend it indefinitely did not denote any new alarm about liquidity.

'We decided to make them permanent to avoid uncertainty as they were due to expire next February,' Kuroda told a news conference. 'We have no plan to extend the swap arrangements beyond the six central banks.'
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