Central Banks Unite to Bolster Global Dollar Liquidity Amid Banking Sector Turmoil

Daily US Dollar Auctions Reintroduced to Ease Funding Market Pressures and Mitigate Impact on Credit Provision

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The Federal Reserve and five other leading central banks have taken new measures to improve global access to US dollar liquidity as financial markets suffer repeated blows from the turmoil affecting the banking sector.

In a joint statement, the central banks said they are moving from weekly to daily US dollar auctions, “in an effort to alleviate pressures in global funding markets.”

The daily exchange lines between the Fed and the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Canada and the Bank of Japan will last at least until the end of April.

A policy followed during Covid-19 The announcement of daily auctions in dollars, in time zones – a policy implemented last during the 2020 Covid-19 shock – came hours after the SNB announced that Switzerland’s two largest banks, UBS and Credit Suisse, will merge after a frenetic weekend of negotiations.

European officials fear that heavy losses for Credit Suisse shareholders and holders of additional tier 1 bonds could increase pressure on bank funding markets this week.

The Fed’s network of exchange lines, created in 2007, provided important backstop funding for global banks in periods of acute market pressure.

Non-US borrowers can use the exchange lines to gain access to dollars in exchange for their domestic currencies, providing collateral to their respective central banks.

The European Central Bank The ECB Governing Council held a call last Sunday to approve the transition to the Fed’s daily exchange line: “The network of exchange lines between these central banks is a set of available standing facilities and serves as an important source of liquidity support to relieve pressures in global funding markets, thereby helping mitigate the impact of such pressures on the provision of credit to households and businesses,” the central banks said.

The Bank of England The BoE announces the details of each day’s operations at 8.15 am London time. Transactions take place at 8.15 am, with a deadline for bids at 8.45 am and results announced at 10 am or shortly thereafter.

Funds will be offered at an interest rate equivalent to overnight rates in the US plus 25 basis points. Permanent after Covid-19 The Fed also has a facility allowing central banks and international monetary authorities to enter into repurchase agreements with the central bank and exchange US Treasury securities for dollars.

The so-called Fima repo facility was first established as part of the Fed’s emergency measures to limit the effects of the Covid crisis and became permanent in 2021.

What does it mean for cryptocurrencies?

The crisis in the Global Banking System highlighted some of the basic properties of Bitcoin, such as decentralization, transparency, scarcity, equality and many other important features it possesses, as well as the freedom offered by the wider decentralized finance sector.

Moreover, moves to increase liquidity in markets always favor investments such as Bonds, Stocks and Cryptocurrencies.

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