The U.S. Federal Reserve took another step to ensure global financial markets operate smoothly during the coronavirus crises by setting up a repurchase agreement facility for foreign central banks so they can obtain U.S. dollars that can be used by banks in their own countries.
The Fed, which has already taken several other initiatives this month to ensure U.S. dollars are readily available worldwide, established a temporary repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) that enables other central banks to temporarily exchange their U.S. Treasury securities for U.S. dollars.
In addition to making U.S. dollars available abroad, the facility will also help stabilize the U.S. market by ensuring foreign central banks are not selling their holdings of treasuries on the market.
“This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market,” said the Fed.
The FIMA Repo Facility will be available from April 6 for at least 6 months.
Given the dominant role of the U.S. dollar in the global financial system, the Fed has taken several other actions this month to ensure funding is available.
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On March 15, when the Fed cut its benchmark fed funds rate for the second time to effectively zero percent, it also cut the price of standing U.S. dollar liquidity swaps b 25 basis points in coordination with the central banks of the euro area, Canada, the UK, Japan and Switzerland.
On March 19 it then established temporary swap lines with the central banks of Australia, Brazil, Denmark, South Korea, Mexico, Norway, New Zealand, Singapore and Sweden to help ease any strains in dollar funding markets.
The following day, March 20, the Fed, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank increased the frequency of their standing dollar swap funding operations to daily from weekly, continuing through April.
The Board of Governors of the Federal Reserve System released the following statement: