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Document Type

Case Study

Case Series

Central Bank Swap Lines

Abstract

On March 31, 2020, amidst historically severe strains in the US Treasury market and global dollar funding markets, the Federal Reserve announced the Foreign and International Monetary Authorities (FIMA) Repo Facility. The FIMA Repo Facility was designed to discourage foreign official Treasury sales and broadly improve foreign dollar funding markets—and ultimately the flow of credit in the United States. The facility provided renewable, overnight repurchase agreements (repos) to central banks and other international monetary authorities against Treasury collateral. This allowed approved central banks to access dollars for precautionary reasons or to pass to their domestic financial systems without engaging in further outright Treasury sales. The Fed priced the facility to serve as a backstop to private repo rates in a normally functioning market. The Fed created the facility to complement its dollar swap lines, which it had made available to 14 central banks. Unlike the swap lines, virtually every central bank in the world was eligible for the FIMA Repo Facility. At the facility’s outset, approximately 30 central banks signed up. However, usage was minimal; volume peaked at just $1.404 billion in May 2020. Despite low uptake, Federal Reserve Bank of New York (FRBNY) staff report the facility was welcomed by market participants and argue that the FIMA Repo Facility eased selling pressure in the Treasury market. Two FRBNY researchers also find evidence it eased foreign exchange stresses and helped restore Treasury holdings of foreign central banks that were outside the Fed’s dollar swaps network. After two extensions, the Fed announced in July 2021 that the FIMA Repo Facility would become permanent.

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