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各大央行设美元互换协议后,市场未现抢购美元

After the major central banks set up dollar swap agreements, the market is not currently snapping up dollars

Zhitong Finance ·  Mar 20, 2023 22:47

Source: Zhitong Finance Author: Li Junping

After central banks around the world joined forces with the Federal Reserve to ease the supply of dollars, there was no rush to buy dollars in the market.

After central banks around the world joined forces with the Federal Reserve to ease the supply of dollars, there was no rush to buy dollars in the market. This indicates that the recent round of banking turmoil may not put excessive pressure on the financial system.

Specifically, the Swiss central bank provides an opportunity to receive dollars from the Federal Reserve every day. This is different from once a week in the past, while the Swiss central bank distributed 101 million US dollars through a repurchase operation due 7 days a week. This is the highest number since October 2022, but it is far lower than the financial constraints that were common in the past.

By contrast, the Bank of England and the Bank of Japan did not receive any bids, and the ECB distributed only $5 million to one bidder, yet the ECB's bid amount last week was 469.5 million US dollars.

Steven Barrow, head of G10 monetary strategy at Standard Bank (Standard Bank), said: “The Federal Reserve and other central banks seem to have taken very pre-emptive action. If the demand for these dollar supply businesses remains quite moderate, we wouldn't be surprised at all. So far, the dollar funding pressure appears to be very limited.”

WHAT HAPPENED?

The Federal Reserve and five other central banks announced coordinated action on Sunday to improve liquidity and increase liquidity supply through permanent dollar swap arrangements; this is the latest effort made by policymakers to ease the growing tension in the global financial system. The Federal Reserve said in a statement coordinated with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss Central Bank that it will increase the frequency of seven-day expiration operations from weekly to daily, starting on Monday March 20, and will continue until at least the end of April this year.

The Federal Reserve usually offers this arrangement when the dollar supply is tight. The reason for this situation is that banks outside of the US usually have debts denominated in dollars, and in times of financial stress, they have fewer opportunities to obtain US dollar financing. Major central banks said the increase in swap lines would “enhance the provision of liquidity” and described these arrangements as “an important liquidity backing to ease pressure on the global financing market” and mitigate the impact on household and business loan supply.

This move enabled central banks around the world to borrow the global supply of reserve money from the Federal Reserve in exchange for an equivalent amount of domestic currency. So-called dollar swap lines were initially widely used during the 2007-2008 crisis, but are now part of the regular strategy of major central banks in times of trouble.

Furthermore, this can also meet the needs of enterprises and financial institutions. These institutions usually have debts denominated in dollars, or are anxious to seek the safety of dollars when the financial system or the world economy is under pressure and access to capital shrinks.

In response, central banks around the world said in a statement last Sunday that expanding currency swap lines would “enhance the supply of liquidity,” and described these arrangements as “important liquidity guarantees to relieve pressure on the global financing market” and mitigate the impact on household and corporate loan supply.

Analysts' Views

When the Federal Reserve announced the latest interest rate setting on Wednesday local time, analysts disagree on what this latest arrangement means for monetary policy.

Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said the Swiss central bank's debt purchases were “very small.”

However, Bank Denmark's chief strategist Piet Christiansen said that the ECB's debt purchases “looked more like testing a system than actual liquidity requirements.”

Furthermore, former Federal Reserve Governor Larry Meyer and others said that this may reduce the possibility of the Fed raising interest rates because it indicates “heightened concerns about the “left-tail risk” (“left-tail risk”) of financial spread.

Others believe that by trying to protect the banking system, central banks around the world should still be able to reduce inflation by raising interest rates.

A study by economists Linda Goldberg and Fabiola Ravazzolo in April 2022 found that swap lines did successfully reduce “the sensitivity of global financial stress indicators to worsening risk sentiment.”

It's worth mentioning that providing dollars to foreign countries — even at no cost to the Federal Reserve — has been the focus of debate among some in the US Congress in the past.

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The translation is provided by third-party software.


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