US Fed opens US dollar swap lines for RBA
The US Federal Reserve has opened the taps for central banks in nine additional countries to access US dollars in hopes of preventing the coronavirus epidemic from causing a global economic rout.
The Fed said the swaps, in which the Fed accepts other currencies in exchange for US dollars, will for at least the next six months allow the central banks of Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand to tap up to a combined total of $US450 billion ($A805 billion), money to ensure the world's US-dollar-dependent financial system continues to function.
Those countries were given swap lines during the 2007 to 2009 crisis, and the Fed has permanent swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank.
The new swap lines "like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global US dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad," the Fed said in a statement on Thursday.
It is the latest in a series of emergency steps the Fed has taken since Sunday to try to limit the economic harm from a health crisis that is forcing large parts of the global economy to shut down in rapid fashion.
The virus has infected more than 200,000 people globally, but may just be in its early stages in the United States.
That has prompted governments to order businesses to close and recommend people practice "social distancing" to limit its spread.
Economists anticipate a dramatic hit to world economic output in coming weeks, and much of the Fed's effort has been to keep credit flowing so households and firms can prevent what is hoped to be a temporary collapse of wages and income from triggering waves of bankruptcies, loan defaults and business failures.
That goes for foreign markets as well, as the US dollar functions as the world's reserve currency, involved in nearly 90 per cent of all foreign exchange trades last year, according to the Bank for International Settlements.
Many foreign companies and institutions also borrow in US dollars, and US economists worry that a sudden stop in the flow of funds to foreign economies could leave them unable to refund debts or get new loans.
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