October 29, 2008 / 11:34 PM / 10 years ago

U.S. Fed launches four new currency swap lines

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday established four new currency swap lines of $30 billion each with Brazil, Mexico, South Korea and Singapore, broadening its efforts to ease U.S. dollar funding shortages around the world.

In a statement released in Washington, the Fed said the new temporary reciprocal currency arrangements have been authorized with corresponding central banks and monetary authorities through April 30.

“These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well-managed economies,” the Fed said

The decision comes a day after the Fed on Tuesday established a $15 billion swap line with the Reserve Bank of New Zealand. The Fed now has 13 swap lines with foreign central banks.

The Fed has expanded its reciprocal currency agreements with foreign central banks in recent weeks to ensure they have a steady stream of short-term U.S. dollar funding as financial institutions in their markets unwind dollar-based assets.

It has lifted all limits on swaps with the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank. It also has authorized swap lines with the central banks of Canada, Norway, Australia, Sweden, New Zealand.

The Fed also said it welcomed the International Monetary Fund’s decision to establish a short term liquidity facility for emerging-market countries, adding it was supporting the IMF’s role in helping countries address and resolve their ongoing economic and financial difficulties.

In separate statements, the foreign central banks said the swap lines would be used to meet U.S. dollar funding needs of their financial institutions and help limit the impact of international financial turmoil on their economies.

The Bank of Korea said in a Korean-language statement that Brazil, Mexico, Korea, and Singapore accounted for 6.0 percent of the world economy in 2007 and together had foreign currency reserves of nearly $700 billion.

“The U.S. dollar swap facility will enhance the robustness of the Asian dollar market for U.S. dollar funding and the foreign exchange markets in Singapore,” the Monetary Authority of Singapore said. “These markets are a significant part of the global financial system, and international financial institutions rely on Singapore as the largest U.S. dollar and foreign exchange centre in Asia outside of Japan.”

The Banco Central do Brasil said the arrangements highlighted the “importance of central bank cooperation at the current juncture.”

Additional reporting by Yoo Choonsik in Seoul

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