A Fed swap line has not been a source of stigma in the way that an IMF loan can be
steadfastly refuses to view itself as the world’s central bank, which is a pity, because it is becoming quite good at the job. One sign of its success is the stabilisation of the world’s reserve currency. The dollar spiked by over 8% against a basket of six other widely traded currencies between March 9th and 20th, as covid-19 panicked investors. But now the greenback is roughly back to where it was at the beginning of the year.
To fund themselves, these banks rely heavily on selling short-term dollar liabilities, including certificates of deposit and commercial paper, to investors. The traditional buyers of this paper are “prime” money-market funds . After the pandemic shattered global market confidence, investors began pulling their money out of these funds, and the funds, in turn, stopped buying the banks’ paper. That forced the banks to scramble for other sources of funding. Borrowing from each other became dearer .
The Fed has always been uncomfortable making quasi-diplomatic decisions about swap lines. It knows that by picking some countries, it risks sowing doubt about others. Turkey, for example, has long coveted a swap line. India also sought one, according to the, a newspaper. The swap-envy is telling. It shows that a Fed swap line is not a source of stigma in the way anloan can be. Brazil, with its comfortable stock of reserves, has not even used its swap line.
France Dernières Nouvelles, France Actualités
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