COVID-19: Top central banks launch new bid to keep dollars flowing

London: Leading central banks on Friday announced a new effort to keep dollars pumping through the virus-plagued world economy.

Starting on Monday, certain dollar liquidity operations among the banks will occur daily rather than weekly, according to a joint statement from the Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Bank of Canada and the Swiss National Bank.

Those operations will continue at least through the end of April and the central banks will also continue to hold weekly 84-day maturity operations, the US central bank said. The banks first said on March 15 that they were stepping up their cooperation on dollar swap lines, when banks agree to exchange currencies to ensure liquidity in stressed markets.

“To improve the swap lines´ effectiveness in providing US dollar funding, these central banks have agreed to increase the frequency of seven-day maturity operations from weekly to daily,” the latest statement said.

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“These daily operations will commence on Monday, March 23, 2020 and will continue at least through the end of April,” it said.

“The swap lines amongst these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.”

Major central banks, individually and collectively, are intensifying their efforts to inject some calm after crashes on financial markets caused by fears of a virus-induced global recession.

The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets,” the Fed said in a statement.

Following the announcement, the dollar index, which tracks the greenback against a basket of major trading partner currencies – including those from the other participating central banks – weakened about 0.4 percent, led by a nearly 0.5 percent gain in the euro.

At the same time, the governments of major economies have announced huge spending plans to limit the damage, and world stock markets on Friday showed a measure of recovery.

The Fed has permanent swap arrangements with those central banks and on Thursday extended swap line provisions temporarily to central banks in nine additional countries to ease access to dollars in hopes of stemming the accelerating financial and economic fallout from the coronavirus pandemic.

Dollars have been in huge demand – and tight supply – in markets outside U.S. borders as banks, companies and governments scramble to secure them to service the dollar-denominated debts many have accumulated.

The Fed has announced near daily emergency moves since it announced a package of measures on Sunday that included slashing interest rates near zero and pledging hundreds of billions of dollars in asset purchases, along with backstopping foreign authorities with the offer of cheap dollar financing.

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