https://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm
So word on the street is that the FED is slowly starting to “bail out the market” with dollar swaps, as now we are getting close to 12 months of this market downturn. Question is, Will dollar swaps have the same effect as bond purchases (quantitative easing or bond purchase / money printing) did 14 years ago during the last economic crash.
https://en.wikipedia.org/wiki/Central_bank_liquidity_swap
Dollar Swaps are when a central bank shores up liquidity in their local currency to shore up liquidity in the central banks currency in forgoing markets. So it is often referred as bailing out foreign banks, which is why it gets a lot of backlash.
Your thoughts?
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No, that’s not “the word on the street”, that’s the uninformed speculation of your local morons.
Dollar swap liquidity lines are provided to foreign central banks any time dollar buying pressure is high / resulting dollar liquidity is low. The US has an abundance of dollar liquidity, foreign banks do not, yet foreign companies of all sorts all conduct the vast majority of their international trade in the dollar. Without dollar liquidity in local markets, that becomes very difficult – sparking dollar liquidity crises – while also exacerbating central bank efforts to modulate their currencies.
It’s not “a bailout” of foreign central banks per say, it certainly helps them and their economies to conduct efficient global trade, which is however also very useful for the US. It’s also highly profitable for the US, the Fed doesn’t “spend” anything, they say swap say $X USD for $X CHF. And they do so when the USD is overvalued and the foreign currency is undervalued. We have a lot of dollars, they don’t have enough, easy meeting of needs.
No, it has no equivalence to “bond purchases”, I also don’t know what you think bond purchases had to do with the last economic crash. The US buys treasuries and such as part of expansionary monetary policy?
And the only reason it ever gets backlash is because your average person is a clueless fucking moron.
No one here knows if this is bullish or not, shorts will cover because of the uncertainty and longs will buy because of . Relief rally is no joke people
Different purpose, different effects.
These foreign currency swaps just swap liquidity in one currency for another. So they don’t increase overall liquidity. And the “dollar swaps” only do so on a temporary basis; they eventually are reversed at the same exchange rate.
Bond purchases on the other hand actually increase the size of the Fed’s balance sheet. They increase the monetary base. The opposite of what the Fed is doing now (currently reducing its balance sheet by up to $95B a month).
Partly because the Fed *is* tightening, the U.S. dollar is very strong right now, so there is demand for U.S. dollars. This would be the likely reason there might be an increase in these swaps. But this doesn’t in any way offset the overall tightening that is occurring. It just ensures that foreign currency markets will continue to function smoothly.