Five central banks in Europe, Japan and the United States said on Monday they have agreed to currency swap lines that enable the Federal Reserve to provide foreign currencies to U.S. financial institutions.
Under the agreement, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan would offer their domestic currencies to the Fed for lending to U.S. firms, should the need arise.
It marks a shift from earlier such arrangements, which were designed to get U.S. dollars to companies outside the United States as the financial crisis clogged the normal flow of credit.
From a macro standpoint, it's an acknowledgment the funding problem is no longer dollar-centric, said George Goncalves, a strategist with Morgan Stanley in New York.
It has become a global problem. It tells me there's been a shift in the 'poles' of the funding problem. As the dollar funding problem heals, the focus is now these foreign currencies and overseas financial institutions.
Alan Ruskin, chief international strategist at RBS Greenwich Capital, said the swap lines were purely a quid pro quo following the dollar swap lines, and he did not expect them to be drawn on anytime soon.
The swap lines, which are authorized until October 30, provide up to 30 billion British pounds, 80 billion euros, 10 trillion yen, and 40 billion Swiss francs to American companies, the Fed said in a statement.
Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets, the Fed said in a statement. The four other central banks issued similar statements.
The Fed had previously established currency swap lines with 14 other central banks so they had U.S. dollars to lend in their markets. The first swaps were established in December 2007, and over time were extended to a wider range of foreign central banks.