6 major central banks make currency swap permanent
TOKYO: Six major central banks said yesterday they would make their web of currency swap arrangements permanent as a "prudent liquidity backstop" in case of future global financial strains.
Bank of Japan, United States Federal Reserve, European Central Bank, Bank of England and the central banks of Canada and Switzerland will convert their "temporary bilateral liquidity swap arrangements" into standing arrangements that "will remain in place until further notice".
"The existing temporary swap arrangements have helped to ease strains in financial markets and mitigate their effects on economic conditions," a coordinated statement from the central banks said.
"The standing arrangements will continue to serve as a prudent liquidity backstop."
Currency swap lines were first introduced nearly six years ago in response to a global credit crunch that starved banks of liquidity and threatened to gum up the entire financial system.
They were an important part of the policy response to the 2007-2009 financial crisis, keeping a lid on funding costs that had spiralled due to fear over counter-party risk.
The arrangements were next due for review in February. Reuters