Friday’s step is the latest move by the central bank to try and restore calm to the markets and ensure that credit continues to flow. The Fed has slashed interest rates to near-zero to help cushion the economy, is buying massive quantities of bonds and has spent this week unveiling emergency lending programs.
Late on Wednesday night, the Fed said it would offer emergency loans to money market mutual funds, the vehicles that millions of Americans use to save money that can be readily tapped. Their total value is about $3.8 trillion, according to the latest data from the Investment Company Institute.
That move was aimed at trying to prevent a recurrence of the events that happened in September 2008, when a major money market fund suffered huge losses on short-term Lehman Brothers debt and “broke the buck,” meaning its value fell below the customary $1 per share.
The Fed is pulling out all the stops to keep the inner workings of the financial system operating smoothly, because short-term economic pain could turn into long-term suffering if credit crunches prevent companies from getting the cash they need to continue operating. Should businesses close, temporary disruptions caused by coronavirus quarantines could turn into long-lasting job losses. That, in turn, could result in broader economic damage as homeowners miss car and mortgage payments.
Keeping dollars flowing abroad is part of that equation.
The Fed has standing swap lines with partners including the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank, and it sweetened the terms on those programs on March 15 to encourage their use.
Article source: https://www.nytimes.com/2020/03/19/business/economy/fed-currency-dollar-swap-lines-coronavirus.html
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