Fed launches temporary repo facility with foreign central banks

  • Fed launches temporary repo facility with foreign central banks

Fed launches temporary repo facility with foreign central banks

The Fed announced Tuesday morning that it would be establishing a repurchase agreement facility for foreign and global monetary authorities (FIMA) that have accounts at the central bank's NY branch.

Stresses in the US dollar markets have pushed the Federal Reserve to open up a facility where foreign central banks can temporarily swap USA government bonds with greenbacks, as the coronavirus continues to grip markets around the world.

WASHINGTON (AP) - The Federal Reserve is intervening once again to try to smooth out the world's lending markets, this time by lending dollars to other central banks in exchange for Treasurys.

"What we often see in a crisis is that there is a shortage of dollars globally", Julia Coronado, founding partner of MacroPolicy Perspectives in NY, said in an interview on Bloomberg Radio. The Fed is trying to prevent this.

Foreign central banks typically lend dollars to banks in their countries, which conduct much of their business in dollars. Foreign entities hold about $6.86 trillion of Treasuries, Fed data show. The Fed's overseas lending program will enable foreign central banks to convert Treasuries to cash without having to sell them.

The Fed had already opened up US dollar swap lines with 14 other central banks as companies and governments around the world scramble for dollars.

The U.S. dollar has also risen swiftly in value in March as foreign investors and governments view the dollar as the safest currency right now.

The facility was authorized by the Federal Open Market Committee, according to the statement. Transactions will be conducted at a rate of 25 basis points over the interest rate on excess reserves, which is now set at 0.1%. Outstanding amounts under the facility will be viewable to the public through weekly releases.

President Trump, a frequent critic of Fed Chair Jerome H. Powell, has praised Powell for his recent actions, which have gone even further to help the economy, banks and markets than the central bank did during the 2008-2009 financial crisis. This selling pressure has, on some days, driven up Treasury yields and clogged financial markets as sellers have struggled to find buyers.