Mysterious $11bn Swiss swapsies
In the wake of crises past, the Federal Reserve set up a series of US dollar swaps with its main central bank counterparties around the world, so that they had access to greenbacks just in case.
The swap lines used to be set up on an ad-hoc basis, but have since 2013 been an established part of the global financial architecture, albeit a rarefied one. Only the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank have access to the standing swap lines. (Others can typically get temporary ones amid major crises, like in March 2020.)
It’s a smart idea, and can be used to support a major local financial institution that urgently needs access to dollars and prevent big financial mishaps. (In theory they work both ways, but really, if we’re being honest, the Fed doesn’t really need Canadian dollars much. It’s all about giving other legit major central banks access to US dollars.)
This story originally appeared on: Financial Times - Author:Robin Wigglesworth
