Global central banks act to ensure USA dollar liquidity

Global central banks act to ensure USA dollar liquidity”

Global central banks have taken coordinated action to make sure there is enough liquidity in the USA dollar as the COVID-19 pandemic roils the global economy.

The swap line arrangements were first announced on March 15 between the Fed and five other central banks: Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

The central banks will also continue to hold weekly 84-day maturity operations, they added in a statement.

The Federal Reserve said on Thursday that it was encouraged by the reaction of banks to the extraordinary efforts to pump cash into the USA economy amid the coronavirus pandemic.

That goes for foreign markets as well, as the United States dollar functions as the world's reserve currency, involved in almost 90 per cent of all foreign exchange trades previous year, according to the Bank for International Settlements.

Gold futures for April ended up $5.30, or about 0.4%, at $1,484.60 an ounce, after scaling a high of $1,519.40 and a low of $1,457.50 an ounce.

In a separate move, the Fed also announced on Friday it would extend its liquidity support into the municipal debt market, the main funding market for USA states, local governments and official authorities such as transit systems.

The new swap lines "like those already established between the Federal Reserve and other central banks, are created to help lessen strains in global USA dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and overseas", the Fed said in a statement on Thursday.

Demand for the dollar, considered a safe-haven asset, is soaring in global financial markets.

The swap facility will be in place for at least six months, the Fed said.

The Fed has undertaken near daily emergency actions since it announced a package of measures on Sunday that included slashing interest rates to near zero and pledging hundreds of billions of dollars in asset purchases, along with backstopping foreign authorities with the offer of cheap dollar financing.

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