The Federal Reserve’s Dollar Swap Lines and the European Central Bank during the global financial crisis of 2007–09

Abstract

<jats:title>Abstract</jats:title> <jats:p>Although the literature has studied the role of the Federal Reserve as the global lender of last resort in 2007–09, many aspects of the Dollar Swap Lines to the European Central Bank need further exploration. Accordingly, we provide original evidence about the auction operations, allotted amounts and interest rates with regard to the Federal Reserve’s dollar swaps and the European Central Bank’s dollar provision. More specifically, we examine the demand side of the Dollar Swap Lines (whereas the existing literature mentions the supply side only) and we scrutinise the interest rate (whereas the literature concentrates on volumes) set by the Federal Reserve, and also the rate set by the European Central Bank. Our findings cast light on the nature of the relationship between the Federal Reserve and the European Central Bank. Finally, we contribute to the literature on the global lender of last resort by coining the notion of the financial dilemma, under the dollar system within a framework of globalised financial markets.</jats:p>

Governing Global Liquidity: Federal Reserve Swap Lines and the International Dimension of US Monetary Policy

“…During the global financial crisis, the use of central bank swap lines established the Federal Reserve as a de facto international lender of last resort. From 2007-10, the Fed used swap lines to fourteen foreign central banks to extend the reach of emergency dollar liquidity assistance beyond its own monetary jurisdiction (McDowell 2012, Mehrling 2015, Sahasrabuddhe 2019, Carré and Le Maux 2020, Hardie and Thompson 2020. Even though the Fed had periodically relied on swap lines since 1962, they were traditionally associated with exchange rate management (Bordo et al 2015).…”

“…These exposures were particularly significant with regard to European banking systems, highlighting the centrality of transatlantic financial conduits for the operation of the international monetary system (Tooze 2018, Hardie andThompson 2020). Swap lines were most effective in bringing down offshore dollar funding pressures after the removal of caps on swap lending to several key counterparties in October 2008 (Carré and Le Maux 2020). Swap lines are thus widely regarded as a mechanism to stabilise and entrench the core of the dollar-centric international monetary order (Mehrling 2015, Murau et al 2021.…”

O momento “Bretton Woods” da Covid-19 e a cooperação monetária por bancos centrais

“…O Banco de Pagamentos Internacionais (Bank for International Settlements -BIS) foi uma das contrapartes. O "Acordo de Swap da Basileia", como foi denominado, administrou e sustentou o sistema de paridade fixa, criado pela primeira versão de Bretton Woods Le Maux, 2020).…”

“…No imediato pós-2008, os contratos de swap foram concebidos como arranjos meramente temporários e limitados, inclusive para os cinco bancos centrais parceiros do FED. À medida que a crise se aprofundava, os swaps passaram a ser autorizados em quantias ilimitadas Le Maux, 2018). De forma pontual, também foram disponibilizados swaps em dólares para as autoridades monetárias da Austrália e da Suécia (até US$ 10bi), da Noruega e da Dinamarca (até US$ 5bi), da Nova Zelândia (até US$ 15bi), e para seletos países de economias emergentes (até US$ 30 bi cada), como Brasil, México, Coreia do Sul e Cingapura (Duran, 2015;McDowell, 2019;Henning, 2015).…”

FX swaps, shadow banks and the global dollar footprint

“…The era of dollar-based financial globalisation has seen a steady rise in the use of foreign exchange (FX) swaps by private financial institutions (Borio et al, 2017; Aldasoro and Ehlers, 2018; Schrimpf and Susko, 2019). Following the global financial crisis (GFC), central banks reintroduced swap lines in response to global dollar liquidity shortages (Aldasoro et al, 2020a; Carré and Le Maux, 2020; Murau et al, 2021; Choi et al, 2021). The growing use of private and official FX swaps reflects the Americanisation of national financial systems – first in rich and then across emerging market economies (EMEs) (Wójcik et al, 2017; Gabor, 2020) – and the increasing interconnectedness of financial networks.…”