The Federal Reserve is acting as central banker to the world by seeking to provide the global financial system with the dollar liquidity it needs to avoid seizing up.
“A lot of borrowing and commerce and investing is done in dollars,” Julia Coronado, founding partner of MacroPolicy Perspectives in New York and a former Fed economist, said in an interview on Bloomberg Radio. “When you have a dollar crunch, it can turn a recession or contraction in activity into a financial crisis very quickly because the dollar shortage can trigger defaults and deleveraging.”
From the Fed statement:
The FIMA Repo Facility will allow FIMA account holders, which consist of central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York, to enter into repurchase agreements with the Federal Reserve. In these transactions, FIMA account holders temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions.
Just In: Federal Reserve is taking another big step. This time to help insulate the US from trouble abroad.— Heather Long (@byHeatherLong) March 31, 2020
The Fed is starting an int'l repo facility for foreign central banks. Foreign central banks can get US dollars by temporarily exchanging their US Treasury securities. pic.twitter.com/0yzhXBagfP
Appears that Jerome Powell got the memo: prevent a Suez (1956) run (this time by Asian dollar hoarders) on US treasuries. Massive efforts to protect dollar centrality. https://t.co/dipJWFMdfs— Mona Ali (@MonaAli_NY_US) March 31, 2020
The Federal Reserve said it would launch a temporary lending facility that for the first time will allow foreign central banks to convert their holdings of Treasury securities into dollars..— S.Harikrishnan (@harikris74) April 1, 2020
The program is designed to alleviate s…https://t.co/L8jOFYnEwK https://t.co/j5ROHQk2G6
#Fed broadens access to dollar funding by introducing a temporary FIMA repo facility available for foreign central banks, mitigates risks of another abrupt Treasury sell-off. https://t.co/1tKV4w8ATK pic.twitter.com/mfYEKBc45y— Jussi Hiljanen (@hiljanen) March 31, 2020