American Federal Reserve set up $30 billion swap lines
On Wednesday American Federal Reserve gave a statement in which it was said that it had set up $30 billion worth of swap lines along with central banks in both Scandinavia and Australia, which also marked their new bid to normalize the pressure of international credit market. The whole action comes on top of $247 billion that has been previously committed to currency swaps with the other foremost central banks. As the authorities battle it out an international credit crunch started by the end of last year’s American subprime market of mortgage.
According to Fed, provisions like these those already exist with the central banks are made to improve liquidity situation in the credit market. According to a statement, during this period of market stress the central banks are continuing their work jointly and are ready to acquire necessary measures as and when the requirement arises. The Fed was of the view that it had made provisional reciprocal currency swap lines up to $10 billion each along with Reserve Bank of Australia, Riksbank of Sweden, Norges Bank of Norway, and $5 billion swaps with Nationalbank of Denmark.
It is evident that the swaps were particularly meant for dealing with the increasing difficulties in short term credit markets of American dollar. Central banks of both Denmark and Norway were of the view that the swap lines would be of great help in increasing their money flexibility in money market procedure as conversely the head of Sweden’s power was of the view that the move was defensive. According to the Governor of Norway’s central bank Mr. Svein Gjedrem, with this agreement Norges Bank is provided with extra flexibility to speak if any such situation arises.
Mr. Stefan Ingves who is the Governor of Swedish Riksbank gave a statement that the financial system of his country was stable and its bank solvent. He also added that Sweden has been affected by the transformed wind of global financial disorder. We are carefully noticing the progress and working strongly with the banks of Sweden, government organizations, and market members.
Australian Reserve Bank didn’t make any remark on the currency swaps but they repeated the statement of Fed on their website. A swap line of $110 billion has already been set up by the Fed along with the European Central Bank, $40 billion with Bank of England, $10 billion with Bank of Canada, $60 billion with Bank of Japan, and $27 billion with Swiss National Bank. According to Fed the swaps bears the authorization till January 20th, 2009.